The outcome of the final FOMC meeting did not break the upward trend on EUR/USD. In fact, it was not the regulator 's intention to do so. Nevertheless, the US dollar strengthened as a result of the December meeting. However, in a couple of hours - already during the Asian session - the US dollar index reversed downward and broke through the psychologically important level of 90.00 and fell to 89.86. Notably, if the US dollar index goes below the 88.95 target, it will drop to its lowest level in six years. Given the current pace of the bearish movement, this may happen already in the near future. The EUR/USD pair also breaks multi-month records. Bulls consolidated in the area of 1.2200, showing their intention to come closer to the next resistance level of 1.2280. This mark corresponds to the upper Bollinger Band on the daily chart. It seems that the pair will be able to overcome this barrier or test it before the end of December at least.
Looking ahead, the results of the final FOMC meeting turned out to be not as many experts had expected. Consequently, a short-term downward correction occured. Thus, the euro/dollar pair immediately plunged to 1.2125 from 1.2180. Buyers started to increase the number of long positions. As a result, the price went upward, impulsively breaking through the resistance level of 1.2200. Similar things happened to the rest of the major currency pairs. An instant US dollar strengthening was used against it.
Notably, the Fed did not give any reason for the weakening of the greenback. Thus, the central bank improved its macroeconomic forecast for the US economy. Previously, the Fed's economists had expected a deeper fall in the economic activity this year. As for the next two years, the American economy was forecast to accelerate. The outlook for September 2021 was revised to 4.1-5% from 3.6-4.7%. The 2022 forecast improved to 3.5%. At the previous meeting, the forecast was at the level of 2.5-2.9%. The 2021-2022 unemployment rate and inflation were revised downward and upward, respectively.
As for the quantitative easing program (QE), the Committee decided to maintain monthly bond purchases of at least $120 billion, keeping the total Treasury and agency mortgage-backed securities purchases at $80 billion and $40 billion a month, respectively. The Fed will continue buying bonds until substantial further progress has been made toward the Committee's maximum employment and price stability goals. The regulator kept its key interest rate unchanged. The majority of the Committee members suggest that it will remain at this level at least until the end of 2023.
Thus, the Fed slightly increased its macroeconomic forecast for the US economy, keeping the key interest rate unchanged and maintaining the same amount of monthly bond purchases. Against this background, the greenback strengthened and incurred losses later. The main problem of the US dollar is that risk sentiment remains strong. The vaccination against COVID-19 has already begun in the US, Canada, and the UK. This fact dampens the fears of the second wave of the coronavirus.
General optimism is also associated with the possible approval of new stimulus aid for the American economy. Lawmakers are now discussing a $908 billion compromise on COVID-19 relief. The bill can be adopted in the very near future - approximately by December 23-24. According to Senate Majority Leader Mitch McConnell, the parties made a significant breakthrough in the negotiations. Currently, they continue working on the document, which requires the approval from both the House of Representatives and the Senate. Apart from that, Senate Democrats have made a similar statement, confirming that lawmakers are one step away from passing the bill.
Additional support for the euro was provided by macroeconomic reports. In December, the business activity index in the manufacturing sector of the eurozone rose to 55 points, showing its best results over the past two years. Economists had expected the reading to grow to 53 points. Germany's manufacturing PMI showed similar dynamics. As for the services PMI, the indicator fell less than expected. This fact also contributed to the strengthening of the euro.
From the technical point of view, the upward trend on EUR/USD remains a priority. All older time frames without exception show that the pair is at the same level with the upper Bollinger Band and above all the lines of the Ichimoku indicator. All these factors indicate a clear advantage of the bullish trend. The main target is seen at the level of 1.2280, that is, in line with the upper Bollinger Band on the daily chart.
