The EUR USD pair initially tried to rally during the session on Wednesday, but as you can see the 1.38 level has caused resistance yet again. The market fell from there, and then of course was helped by the FMOC and its announcement that it was tapering off of the bond purchase program. Although the pullback in the amount of bonds being purchase is relatively small, it still shows that the Federal Reserve is in a place where it may have to start tapering in the future as well. This is very bullish for the US dollar, and as a result I think this pair will continue to fall in the very short-term.
However, it must be kept in mind that the Federal Reserve also mentioned that interest rates are going to be very low for an even longer period of time than initially announced. That is US dollar negative. With that being the case, I am somewhat suspicious of this selloff, and believe that it may only have a limited life span.
Watch the ECB
Watch the European Central Bank over the next several weeks. There are concerns about deflation in Europe, and that could lead to an expansion of quantitative easing on the continent. If that’s the case, this pair could really start to melt down. However, I believe that the 1.36 level will offer quite a bit of support based upon the charts, and the fact that the Federal Reserve isn’t ready to let rates rise too much. We will have to see how this plays out over the next several sessions, but I think this move will be relatively short-lived, which of course will be exacerbated by the fact that we are in the holiday season and a lot of traders won’t be willing to put on long-term positions.
With that being said, I am on the sidelines for the time being as I believe the bounce from the 1.36 level could be significant enough to trade to the upside, but we will have to wait and see on what happens next. In the meantime, I’m essentially in a holding pattern when it comes to this pair.
