Euro slips after taper

The euro is off versus the US dollar after last night’s announcement that the Federal Reserve will be trimming the stimulus package.

Yesterday’s move by the US central bank to cut the monthly bond-buying scheme by $10 billion to $75 billion took the market by surprise. According to a survey by Bloomberg, 64% of respondents were not expecting any tapering, so when the news broke, dealers sold the euro. EUR/USD is now trading at $1.3678, down 0.05%.

The bond-buying scheme helped the US economy recover from recession, but quantitative easing also put pressure on the dollar. The prospect of a reduction in the programme has encouraged traders to buy the dollar.

The Federal Reserve released a dovish statement and reassured traders that interest rates would remain ultra-low for the foreseeable future. Now that unemployment in the US has reached 7%, the Fed named 6.5% as its new target.

The euro reached a double top around the $1.38 level, and support seems to be at the $1.3620 mark. If the euro drops below this level, we are likely to see it decline towards $1.35.

Spot FX EUR/USD chart

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