EUR/USD May Be Suffering From Overbought Conditions After The Fed Decision

EUR/USD is on the rise, extending its gains from late on Wednesday. The dovish decision by the US Federal Reserve is the dominant driver in markets.

While the Fed left its policy unchanged, it made significant changes to its message. They pledged patience on raising rates amid rising uncertainty stemming from more signs of weaker Chinese and European growth, Brexit risks, the US government shutdown, and other factors.

The world’s most powerful central bank also announced that it is examining the balance sheet reduction program that spooked markets. Chair Jerome Powell and his colleagues will announce more details in the coming meetings.

All in all, the Fed made a decisive dovish shift, and the greenback reacted with a fall across the board.

While markets continue digesting the Fed decision, quite a few data points are coming out of the old continent. Germany reported another disappointing number: retail sales plunged by a whopping 4.3% in December, far worse than expected.

Italy is due to report a second consecutive drop in its output in Q4, thus officially entering a recession. The GDP for the euro-zone as a whole is projected to show a meager increase of 0.2%, repeating the figure from Q3.

In the US, the new home sales report will be watched for further signs of weakness in this sector. Quite a few figures are still delayed due to the government shutdown.

Trade talks between the US and China culminate in Washington as President Donald Trump meets Chinese Premier Liu He. It seems that China is not ceding ground to American demands.

The fresh Caixin Manufacturing PMI from the world’s second-largest economy showed a slight improvement, perhaps adding to the calm approach. Any dramatic news may shift markets’ attention from the Fed to trade.

EUR/USD Technical analysis – overbought conditions?

EUR USD Technical Analysis January 31 2019

 

The Relative Strength Index on the four-hour chart is just above 70, indicating that EUR/USD entered overbought conditions. On the other hand, Momentum remains upbeat and the pair trades above the 50 and 200 Simple Moving Averages.

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