Following the Fed’s hawkish hike, EUR/USD weakened. At first, it held above the the critical level but this collapsed and the pair is already at 1.0372. What’s next? Parity is in sight:
Here is their view, courtesy of eFXnews:
We expect the euro to remain under downward pressure against the US dollar after breaking below key technical support from the cyclical low in March 2015 at 1.0458.
Fundamental support for a stronger US dollar has been reinforced by the more hawkish outlook for Fed policy. The Fed has not even fully incorporated the potential boost to growth and inflation from looser fiscal policy under President elect Donald Trump which could provide the catalyst for further US dollar strength during next year. The more hawkish outlook for Fed policy stands in contrast to the still dovish policy signal sent from the ECB at their last policy meeting. The dovish taper provided reassurance to the market that the ECB will continue to ease policy significantly until the end of next year.
The policy divergence trade has been reinvigorated weighing on EUR/USD and is unlikely to be derailed in the near-term.
EUR/USD heading for a test of parity.
For lots more FX trades from major banks, sign up to eFXplus
By signing up to eFXplus via the link above, you are directly supporting Forex Crunch.
Share
