Was It A Dovish Or A Hawkish Hike? Wall Street Will Determine Soon

  • EUR/USD hit a 6-week high as markets changed their minds about the Fed.
  • The focus turns final reaction from Wall Street.
  • The technical picture is still bullish for the pair.

EUR/USD is trading in the mid 1.14002 after hitting a high of 1.1485, last seen on November 7th, in the aftermath of the Mid-Term Elections. Markets are still digesting the Fed decision from Wednesday.

The US Dollar initially rallied on the rate hike, the intent to continue with gradual rates, and the repetition that “risks are balanced.” The dot-plot saw a downgrade from three to two hikes for 2019 while bond markets had already had doubts about a single rise.

To top it off, Fed Chair Jerome Powell said that the balance sheet reduction, also known as Quantitative Tightening(QT) would continue on auto-pilot. The comment sent stocks tumbling and completed the picture of a “hawkish hike.”

The night turned into day, and the markets have a different perception now. While the ongoing QT is not helpful to stocks, the downgrade of rate expectations weighs on the USD and this change of heart sent EUR/USD to the highs.

Will the mood change again?

The ball returns to the US court, especially to Wall Street. As the analysis of the event continues pouring in, a final narrative will be set. Is the Fed still hawkish or is it dovish now?

Stocks remain highly volatile and may turn sour again. In the recent past, falling equity prices went hand in hand with a stronger dollar. EUR/USD will likely follow shares down. A rally will push it higher.

US jobless claims came out at 214K, within expectations and the Philly Fed Manufacturing Index missed with 9.4 points. These are not top-tier figures, leaving the focus on Wall Street.

There are no data of significance either, but the Euro outperforms some of its peers thanks to the European Commission’s announcement that they will not punish Italy, that also came on Wednesday.

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