US Federal Reserve raised interest rates as expected. Main focus was on the statement and Yellen press-conference. USD bulls hoped for an announcement of 4 rate hikes next year with more hawkish sentiment. It did not happen. One of the reasons could be a confidence in successful tax cut deal, so there was no need in further support of the reform from FOMC. Plus it seems like Yellen decided to leave a room for maneuver to the next Fed Chairman, Jerome Powell. We’ve seen a slide of the greenback as the result of such disappointment, which has been limited though. US T-Note yields lowered yesterday, but the stock indices showed record highs. Usually rate hikes from the Fed are negative for stocks, but support came from politicians, announcing tax cut deal and good chances to pass votes on Wednesday next week.
We went short on EURUSD despite the upside sharp run on Fed yesterday, and here is why. We do not expect Euro Central Bank Chairman, Mario Draghi, to change his boring and dovish rhetoric during his press-conference on Thursday. It’s in his interest to prevent euro from too fast appreciation, taking in count how many export oriented countries are behind him. Inflation remains low, and it would be the main justification for ECB to keep the interest rates at historically low levels and to continue liquidity injections to the banking system. Cheap borrowing funds are positive for business, creating a comfortable environment for further growth of production, investment, consumption and employment. Plus do not forget about external competition.
Second reason is the continuation of the same tax cut reform expectations in US. The rumors circulate for quite a long time and seems like politicians are very close to finalize the deal and make it real. This gives a support to US companies, lifting the expectations of growth in corporate earnings. In a world-wide perspective, US corporate sector becomes more attractive for foreign investors, which could increase the sustainable demand in US dollar.
The third reason is technical. You can find below EURUSD H4 chart setup, updated after we showed it in last post on Sunday. Bearish factors are: the price failed to breakthrough the SMA89 (1.1834 green line), remaining below red middle line of the downscending channel from highs in September. Blue lower dotted line is a clone of support line from May 2017. Broken support works as the resistance. RSI14 shows a bounce-by-trend (blue arrow), which usually is a bearish signal from the oscillator. Targets for this week are: 1.1725 and 1.1680.
Let the profit be with us!
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