EUR/USD trade idea by

Long upper wick on yesterday’s EUR/USD candlestick was not confirmed today. The recovery is continued and the probability of upside breakout rises. The nearest important resistance level is 50.0% Fibo of-of September-November drop at 1.1515. We think that even stronger EUR/USD move is likely and have raised the target of our long position that had been opened at 1.1320. The new target is 1.1570.

EU reached a deal with Italy

The European Commission reached a deal with Italy over the country's 2019 budget that avoids an EU disciplinary procedure against Rome, Commission Vice President Valdis Dombrovskis said. He added the decision could be revised in January if Rome did not fully apply the agreement reached with Brussels. Under the compromise, Italy has lowered its headline deficit for next year to 2.04% of output from 2.4% it had planned earlier.

The more important structural deficit, however, which excludes one-off items and business cycle swings, will not change in 2019 from 2018 levels. Under EU rules, Rome was supposed to reduce the structural deficit by 0.6% of GDP, but instead proposed in its original 2019 draft budget an increase of 1.2% according to the Commission. The compromise at zero change was not ideal, Dombrovskis said, but allowed the Commission to drop plans to start disciplinary action that could end up in fines.

Slowdown in UK CPI

British consumer prices rose at an annual rate of 2.3% in November, the lowest since March 2017, in line with market consensus and down from 2.4% in October.

The biggest monthly fall in petrol prices in more than three years was the biggest driver of slower consumer price inflation, reflecting a sharp fall in the cost of a barrel of oil.

British consumers have been pressured by inflation since June 2016's Brexit referendum triggered a fall in sterling. A year ago, inflation peaked at a five-year high of 3.1%.

But despite the fall in inflation since, and a pick-up in headline wage growth to its highest in a decade, businesses have reported a downturn in consumer spending in recent months.

The British Chambers of Commerce forecast on Tuesday that economic growth this year and next would be the slowest since the country was last in recession in 2009.

Earlier this month the Bank of England sketched out a worst-case no-deal Brexit scenario in which sterling would plunge to parity against the U.S. dollar, inflation would exceed 6% and the economy contract by 8%.

Fed to raise rates and lower rate projections

The Fed will likely raise its target rate by another 25bp to a range of 2.25-2.50% today. This would be the fourth hike this year, the most since 2006. The interest paid on excess reserves, IOER, will most likely be raised by only 20bp in order to bring the effective fed funds rate back to the middle of the target band.

The updated Summary of Economic Projections should show similar economic and inflation projections for the coming three years to those forecast in September. The FOMC members’ rate projections, however, will likely be lowered and indicate a shallower path than before. In particular, we expect the dots to signal only two hikes for 2019 (down from three), and the dots for 2020/2021 might each come down by 25bp as well. The main reasons for the more cautious rate outlook are, in our view, tighter financial conditions as well as concerns about the outlook.

U.S. President Donald Trump has repeatedly berated the Fed and on Tuesday said in a Tweet it was "incredible" for the central bank to even consider tightening given global economic uncertainties.

Comments by Fed Chairman Jerome Powell in late November that the key interest rate was “just below” neutral, a level that neither brakes nor boosts the economy, have bolstered investor expectations that U.S. central bank is nearing a pause on its monetary tightening.