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Euro Shrugs Off Historic Fed Rate Hike

EUR/USD is uneventful on Thursday, as the pair trades at 1.0850 in the European session. Looking at the day’s economic events, German Ifo Business Climate posted a reading of 108.7 points, short of the estimate. In the US, there are two key indicators on the schedule, the Philly Fed Manufacturing Index and Unemployment Claims.

As expected, the US Federal Reserve raised interest rates by 0.25% at its policy meeting on Wednesday, the first upward move since June 2006. The Fed had been sending a steady of stream of hints that it was intending to tighten monetary policy since the last policy meeting in late October. This gave the markets ample time to price in a rate hike, and EUR/USD reacted to the news with modest losses. Although the small rate hike has not shaken up the currency markets [1]and is expected to have limited economic impact, the psychological angle of the rate move cannot be overestimated, as the Fed has given the US economy a critical vote of confidence, and has indicated that additional rates are likely over the course of 2016. The Fed’s strategy contrasts sharply with the bungled approach of the ECB, which failed to communicate properly with the markets, which led to complete shock in the markets when the ECB failed to take any significant monetary steps at its recent policy meeting, resulting in a sharp ascent by the euro.

Overshadowed by the market hype leading up to the Fed rate hike, Eurozone releases have enjoyed a positive week. On the manufacturing front, German, French and Eurozone Manufacturing PMIs all slightly exceeded their estimates, and all remained above the 50-point level, which indicates expansion in the manufacturing sector. Earlier in the week, German and Eurozone ZEW confidence reports both improved sharply. On Thursday, German Ifo Business Climate remained steady, posting a strong reading of 108.7 points. However, this was short of the estimate of 109.2 points. These solid numbers could bolster the euro, which is up about 300 points in the month of December against the US dollar.

EUR/USD Fundamentals

Thursday (Dec. 17)

*Key releases are highlighted in bold

*All release times are GMT

EUR/USD for Thursday, December 17, 2015

EUR/USD December 17 at 12:15 GMT

EUR/USD 1.0848 H: 1.0887 L: 1.0832

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.0659 1.0732 1.0847 1.0941 1.1087 1.1172

Further levels in both directions:

OANDA’s Open Positions Ratio

EUR/USD ratio is unchanged, as short positions command a strong majority (62%). This is indicative of trader bias towards the euro losing ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher [5]

Currency Analyst at Market Pulse [6]
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.