This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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.