FxWirePro: Short term outlook – how low can Euro go?

Last night, US Federal Reserve delivered much anticipated 25 basis points rate hike after long 7 years of zero rate policy. Market is in its overall December calm, no massive dollar buying, no big short covering. It was just like, as expected - hawkish in action, dovish in communication. Stocks were up, emerging market currencies, recovered some ground.

However, Dollar has managed to rise against developed market currencies and in absence in major profit booking in Dollar and short covering in other pairs, it might continue further.

Had it been not for the ECB disappointment and mega covering post that, Euro could have rose immediately. Since that not be the case, Euro might continue lower going ahead.

Trade idea -

For Euro/Dollar, our views are mixed but distinct, depending on the time horizon.

Since policy practically still diverging among ECB and FED and will continue to do so at least till March, 2017, we remain fundamentally short on Euro (have been for quite long now).

However, since ECB is not that dovish, we expect there could be short covering in Euro and long covering in Dollar and might push Euro/Dollar to as high as 1.15.

But that is not the idea, we are selling in this piece, while both of them remains, we believe in absence of any mega covering at this point, Euro might grind lower against Dollar. Probably around 1.06 area. For this trade stop loss is around 1.10.