Fed keeps EUR/USD bulls on defense
Dec 18 (Reuters) -EUR/USD hit a 1-month low Wednesday and downside risks are likely to remain after the Fed delivered a hawkish cut, which could keep its policy SRAM26 on a diverging path from the ECB FEIZ5.
The Fed's 25bps cut was overshadowed by policymakers' increased median view for fed funds rates from 2025 to 2027 and for the longer run.
The Fed's Summary of Economic Projections indicated higher GDP and inflation projections for 2025 and a lower unemployment rate for end of 2025.
Rates markets priced in a Fed pause in January and priced in only two rate cuts in 2025. Previously they had been wavering between two and three reductions.
The Fed's latest policy decision and projections should keep the dollar attractive for investors. The dollar's yield advantage over the euro should be maintained and German-U.S. yield spreads US2DE2=RR could widen, which could help keep downward pressure on EUR/USD.
EUR/USD's price action has technicals highlighting downside risks.
Monthly and daily RSIs are falling but are not oversold, which implies downward momentum remains. EUR/USD's hold below the 5- and 21-DMAs reinforces bearish signals.
November's monthly low is support. Should it break, EUR/USD shorts will likely target parity.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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