The US dollar rallied against the Euro on Wednesday after the Federal Reserve signaled yesterday on its statement that interest rates will remain very low for a considerable time. The Currency pair has corrected by 0.73% to consolidate at 1.2866. Demand for the U.S. dollar spiked yesterday after the Fed announced it is likely to close its monthly bond buying program by next month and keep the interest rates unchanged at 0.00-0.25%.
The Fed has lowered its bond buying program to $15 billion and is likely to close the stimulus program at its meeting scheduled for October 28-29th. Apart from the Fed’s decision to keep the benchmark interest rates unchanged for now, the U.S. labor department came out with a report on Consumer Price index which slipped by 0.2% in August resulting in decline of annual inflation rate to 1.7% as against 1.9% in the month of July. The main reason behind the drop in inflation was the drop in the prices of gasoline which declined by 4.1%.
The Currency pair seems to have gained a strong downward momentum and may continue to drift lower from the current levels. The Currency pair lost around 0.73% on Wednesday, its biggest loss since September 4th 2014, the technical indicators on the daily charts suggest the currency pair is highly oversold and may witness a trend reversal in the near future if it is able to sustain above 1.2950 levels. The relative strength index shows the currency pair is oversold and giving healthy buy signals. From the current levels the currency pair may slip down to 1.2700 levels before it finds some support.
Short the currency pair with a target of 1.2810 and a stop loss of 1.2950.
Traders can go long on the currency pair with a target of 1.2980 and a stop loss of 1.2850.