EUR/USD enjoyed some positive data and lots of hope, settling comfortably above a higher line, before the Fed decision.
Expectations are high for fresh monetary easing from Ben Bernanke and co. What if they don’t deliver? And even if they do, could EUR/USD “sell the fact”?
The FOMC is expected to announce new measures now that the extension of Operation Twist comes to an end. As the twist has already done its work, the Fed is expected to add around $45 billion of monthly purchases of treasuries (QE4), in addition to the current monthly program of buying Mortgage Based Securities (MBS), worth $40 billion.
The current volume of Operation Twist is $45 billion. However, Operation Twist just changes the composition of the Fed’s balance sheet, while the QE programs enlarge the balance sheet: print dollars and evaluate the currency.
However, nothing is certain: the Fed could go for only $30 billion in new buys of treasuries or less. At the current value of EUR/USD, that would be a big disappointment.
And even if the Fed does deliver on market expectations, we could still see the “buy the rumor, sell the fact” behavior – taking profits on long EUR/USD positions, whatever the outcome is.
EUR/USD is now trading at 1.3037, just above the 1.3030 line, after reaching 1.3052 earlier in the day. The pair started the week by testing the 1.2880 line, and climbing gradually since then.
So, euro/dollar is high in the range, and it could certainly fall to the lower part of this range.
For more, see the euro to usd forecast.