EUR/USD hits a high of 1.1474, the highest level since 7 November
Price broke free of the resistance level earlier at 1.1434-45 and now looks to challenge the resistance level from 20 November high of 1.1472. The jump higher comes as broad dollar weakness is observed across the major currencies bloc.
GBP/USD also jumped up to a high of 1.2680 before retail sales data helped it to 1.2692. Meanwhile, NZD/USD has also pared almost all of its losses on the day trading at 0.6762 now from 0.6730 levels earlier.
So, why exactly is the dollar selling off after the knee-jerk reaction higher yesterday? As mentioned earlier, although it was a less dovish than expected take by the Fed, it is still a dovish take.
I reckon the Fed will indeed take a slower approach next year and at this stage, two rate hikes to follow in 2019 will eventually become the base case scenario. The issue now is the timing of those hikes. The Fed stressed heavily on data dependency so it will depend on how suitable economic data will allow for those two hikes to materialise. That does add uncertainty to the picture because what if data doesn't warrant a hike at all? If you consider that scenario, the dollar at least has one reason to be partially less bullish next year.
I still stand by that conviction and it will slowly develop into a theme for markets next year in my view. We have become so accustomed to a hike at every other meeting by the Fed now that when the Fed mixes things up to be even more data dependent, there's no certainty in believing that they may hike several times in 2019. And as I always reiterate, markets hate uncertainty more than anything else.
For EUR/USD, we now have to pay attention to the bigger picture:
For today, it'll be all about the 100-day MA (red line) @ 1.1486 and the 1.1500 handle. If buyers can manage a break above that, it's pretty much lift off towards the upside for EUR/USD.