Nice surprise from the FED yesterday…. we did toy with the idea of a possible hawk BUT was really not an easy one, as could have gone either way but the pragmatism from FED Chair Powell did win out…. since 2018 he is telling us to watch data.. as so does the FED and the recent development in data as well as inflation just seems to finally have made it clear that talking about taper is the right thing… we all know rate lift off is still some time away BUT as you have heard me say for many weeks now… the current QE program just makes no sense… and Taper has to be on the table… and so it was….. also the dot plot now seems 2 hikes priced for 2023 and the fixed income market has now priced 1 full hike by end of 2022.
This is quite a change to pre FED… and the EURUSD bears the brunt of the current USD adjustment…. we have 4 reasons to believe that this could carry on…. 1) clear surprise by the FED hence adjustment makes sense 2) the ECB made it clear that they are NOT the FED… so we expect the ECB to be the last CB in the G10 space to normalise rates 3) the market is caught long EURUSD 4) we come out of a multi-week dull range, so the FED caused a range break, another reason for a follow through.
We have now tested the 1.1945 key fibo support from the daily charts and this might just hold for the moment for a bit of a consolidation BUT WATCH 1.1945 on a daily close… a daily close below 1.1945 would mean the Turn is real…. target 1.1695 again (similar move to March/April) and a clear acceleration of the move… on the topside….I do NOT expect us to get much above 1.2050 and that is the rally to sell into…. I feel this turn is real.