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EUR-USD reacted negatively to the relatively hawkish Fed decision and dropped to support. Can it last? The team at Danske has doubts.

Here is their view, courtesy of eFXnews:

Danske Research comments on today’s FOMC September decision noticing that markets interpreted it hawkishly by sending EUR/USD lower and US Treasury yields higher.

“EUR/USD fell below 1.19 on the Federal Reserve statement….Yellen’s comments at the following press conference sent the pair further down and firmly below 1.19. It serves to show that while EUR/USD has been buoyed by strong EUR momentum as capital flows have started to reverse, the cross is not immune to continued tightening of US monetary policy.

As the market is now pricing 60% probability of a December rate hike, there should be limited further support to the USD from tightening of US monetary policy, though.

Hence, the dip in EUR/USD should prove shallow and short-lived and we look for it to recover to 1.20 in the short term,” Danske argues.

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