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EUR/USD Edges higher as Fed Announces QE4

EUR/USD  has edged higher  after the  Federal Reserve announced on  Wednesday that  it would implement another round of quantitative easing (QE4). Under this program, the Fed will purchase an additional 45 billion dollars per month  in Treasury holdings in order to bolster the economic recovery. As expected, the Federal Reserve held the benchmark interest rate at below 0.25%. The markets will have plenty of data to sift through on Thursday, with four key releases out of the US – Core Retail   Sales, Retail Sales, PPI and Unemployment Claims. In Europe, Brussels plays host to the EU Economic Summit and the Eurogroup Meetings.

EUR/USD Technical

The pair pushed higher following the Fed announcement to implement Q4.

  • Asian session: Euro/dollar steadied, as the pair consolidated at around 1.3075. The pair has edged higher in the European session, and is close to the 1.31 line.
  • Current range: 1.3030 to 1.3080.

Further levels in both directions:    

  • Below: 1.3030, 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390 and 1.2250.
  • Above: 1.3080, 1.3130, 1.3170, 1.3290 and 1.34.
  • 1.3030 is providing weak support.
  • 1.3080 is the next line on upside.

Euro/dollar  rises following  Q4 announcement  – click on the graph to enlarge.

EUR/USD Fundamentals

  • 9:00 ECB Monthly Bulletin.
  • All Day: EU Economic Summit (Day 1).
  • All Day: Eurogroup Meetings.
  • 13:30 US Core Retail Sales. Exp. 0.0%.
  • 13:30 US PPI. Exp. -0.5%.
  • 13:30 US Retail Sales. Exp. +0.5%.
  • 13:30 US Unemployment Claims. Exp. 368K.
  • 13:30 US Core PPI. Exp. +0.2%
  • 15:00 US Business Inventories. Exp. +0.4%.
  • 15:50 US Natural Gas Storage. Exp. -4B.
  • 18:00 US 30-year Bond Auction.

For more events and lines, see the Euro to dollar forecast

EUR/USD Sentiment

  • Federal Reserve Announces Q4: As widely expected, the Federal Reserve announced that it would implement QE4, a further round of monetary easing. The Fed  is hoping  that this step will bolster the US economy, which is recovering more slowly than expected. Under Q4, the Fed will purchase 45 billion dollars per month in Treasury holdings.  This is in addition to the $40 billion  that the Fed has been buying in mortgage backed securities under Q3. Operation Twist, in which  the Fed swapped short-term Treasuries for longer term  U.S. government debt, will be phased out at the end of December.  The Federal Reserve also announced that it maintain the benchmark interest rate at 0%-0.25%. The currency markets reacted quickly  after Q4, and the dollar was broadly weaker against the major currencies, with the euro making some gains against the greenback.
  • Eurozone numbers a mixed bag: Eurozone numbers continue to zigzag, making predictions about the direction and health of the zone a tricky task. Earlier in the week, German and Euro-zone Economic Sentiment releases looked sharp, a both indices  crossed into positive  territory, indicating positive sentiment. However, French, Italian and Eurozone Industrial Production were all well below the forecast, pointing to ongoing weakness in the manufacturing sector. With countries like Greece, Italy and Spain all struggling, the Eurozone’s road to recovery  promises  be a bumpy one.
  • EU Summit to discuss banking union: EU leaders are expected to give their support to the proposal for the ECB to become the single supervisor of all 6,000 banks in the Eurozone. The idea is to set up a banking union in the zone and perhaps the EU, in which the ECB would provide supervisory oversight. The chair of the summit, Herman Van Rompuy, is hopeful for a general consensus, with the details to be worked out sometime next year. However, Germany is showing reluctance to the idea, as it is not keen on having German banks and saving institutions governed by an external authority rather than by  a German banking regulator.
  • Sides far apart over fiscal cliff: Republicans and Democrats continue to  bicker and trade accusations as  the fiscal cliff crisis continues. The Democrats  have  lowered their  demand  for  $1.6 trillion in additional taxes to $1.4 trillion, but the Republicans have offered just  $800 billion in new tax revenue. The Republicans want  more spending cuts and tax reform measures, while the Democrats are pushing for tax hikes on the wealthy.  We can expect the squabbling  to continue, but in the end, some compromise or stop-gap measure is likely to be reached.

Kenny Fisher

Kenny Fisher

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.