ECB Puts the EUR Back Under Pressure, the Ball is Now in the Fed’s Court

Dec. 9, 2016 ( – The initial results from the Italian referendum may have failed to add additional pressure on the EUR but the European Central Bank’s decision to expand its QE program until December 2017, did the job later in the week.

In the trading session today, the EUR continued its decline spurred by the ECB announcement. The single currency re-tested support at 1.0516 and once again bounced higher. This is the fourth unsuccessful attempt to break the 1.05 mark since November 2015, with the big long-term support level to watch still standing at 1.0469.

Will the Fed’s December 14 monetary policy announcement provide the catalyst for a bearish breakout below 1.0469, which could open the door to further EUR weakness?

For the last few weeks, Fed fund futures have been showing nearly 100% probability of a 0.25% rate hike next Wednesday, which means that such expectations may be already fully priced into the EUR/USD exchange rate.

However, should the Fed hint of a faster pace of rate increases throughout 2017, the market could consider it as a sufficient enough reason to send the EUR one step closer to parity with the USD.

The ball is now in the Fed’s court…



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