EUR/USD Bear Flag in Play Now that FOMC Eyes December
- EUR/USD rejected former support region near $1.1085/1.1110.
- AUD/USD falls back into August-October symmetrical triangle.
The Federal Reserve's policy statement yesterday was a touch more hawkishess than markets were expecting, and now it appears that the prospect of a December 2015 rate hike is alive, regardless of recent economic developments. Just how weak the US economy got by the end of Q3'15 is exactly the question in focus today, with the Q3'15 US GDP report due out at 12:30 GMT.
At a minimum, the Fed made it clear yesterday that its next policy moves are wholly dependent on incoming economic data, giving additional weight to incoming reports, especially next week's October US ISM gauges and the October US Nonfarm Payrolls report. Having been previously pushed back to March 2016 as the most likely period for the first rate hike (and ahead of the FOMC meeting yesterday, the probability of a rate hike this year was only ~30%), shifting rate expectations are the fuel for the US Dollar right now. As of this morning, Fed funds futures contracts were now pricing in a 48% chance of a move in December.
These developments - alongside the ECB's recently perceived dovishness - bode poorly for EUR/USD. EUR/USD broke its rising uptrend from the March, April, July, and August lows last week, an early indication that its seven-month long bear flag initiated. Momentum indicators have slid into bearish territory on both the H4 and daily timeframes, suggesting emerging continuity across timeframes in the downtrend. EUR/USD could see price decline into $1.0800 over the coming weeks.
--- Written by Christopher Vecchio, Currency Strategist
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