5 Reasons Why EUR/USD Soared To 7 Week Highs On FOMC

EUR/USD soared to 7-month highs today for the following reasons:

1. Fed failed to live up to expectations. Says now is not the time to talk taper
2. German 10-year bund yields hit 2-month highs
3. Improvements expected in Thursday’s German labor market and EZ confidence numbers
4. With 7 weeks until the next Fed meeting, restrictions will ease in EZ before Fed talks tightening
5. Technically, EUR/USD breaks to upside

The Federal Reserve failed to live up to expectations resulting in broad-based losses for the U.S. dollar. The greenback traded lower against all of the major currencies and this weakness pushed EUR/USD to its strongest level in nearly two months. According to the FOMC statement, economic activity and employment strengthened thanks to progress on vaccines and strong policy support. With business activity gaining traction, their optimism was widely anticipated. Investors were also hoping that recent improvements would encourage Fed Chairman Powell to hint about tapering but he didn’t take the bait. Instead, Powell emphasized that the increase in inflation is transitory because there’s still significant slack in the labor market. “A transitory rise above 2% inflation this year wouldn’t meet standard of moderate overshoot.” Instead of staying mum on balance sheet changes, Powell said now is not the time to start talking about the taper, which was all that investors needed to hear to send the dollar tumbling lower. The greenback sold off across the board and with 7 weeks until the next policy meeting, the Fed’s reluctance to reduce accommodation could keep the dollar from rallying in the near term.

10 and one 10 us dollar bill

Image Source: Unsplash

FOMC was not the only reason why EUR/USD catapulted higher on Wednesday, though it was certainly the most important. German 10-year bund yields also hit a 2 month high and tomorrow, we are looking for stronger German labor market and Eurozone consumer confidence numbers. Inflation data should also be hotter with commodity prices on the rise. Time is on Europe’s side. More Europeans are getting vaccinated every day and in May restrictions could ease. When that happens the prospect of robust demand should drive renewed gains in euros. On a technical basis, the 20/50-day SMA cross is a signal of further strength.

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