The US inflation and retail sales data released earlier today negatively surprised everyone and sent the dollar tumbling 100 pips downward. But as I mentioned in the previous forex update, the FOMC statement and Yellen´s press conference were the elephants in the room today.

In fact, the elephant in the room should have been the interest rate hike. However, because everyone knew it was coming there were no surprises there. The rate hike was all priced in, so interest was on the future path of the monetary policy.   

Both the FOMC statement and the FED were sort of hawkish and they totally dismissed today´s disappointing economic numbers, specifically inflation. That sent the USD back up (EUR/USD down) where it was in the morning.

A dramatic turnaround in EUR/USD today   

In the opening statement it read “inflation is largely driven by one-off items”. That implies that the currently weak inflation numbers are temporary and they will likely dissipate soon and allow inflation to run hotter.

Yellen supported this view. That was a big blow for USD bears who were hoping that today´s economic data would force the FED to be dovish.

But the FED ignored today´s numbers and they even hiked growth expectations. US GDP for 2017 ticked a point higher to 2.2% from 2.1% previously, unemployment is expected to fall to from 4.5% to 4.2% by the end of the year and core inflation remained unchanged at 2% (year-end) despite today´s miss.

So, this was a hawkish statement and press conference. The market was expecting the to be dovish after the hiking  of interest rates today, which makes it extra bullish for the US Dollar.

The buyers jumped in after the pressure and sent the USD 100 pips higher, but I think that there´s a lot more potential to this trade. Technically, the USD is severely oversold in larger timeframe charts and now the FED has its back as well. That means both technical analysis and fundamental analysis line up in favor of the USD.

We have a live long term sell forex signal in EUR/USD so we can´t add more to it. Neverthless, if it suits your risk management techniques you can add another long term sell position here with a stop above 1.14 and targeting 1.10 at least. Although, we´ll keep an eye on USD/JPY to see if we can spot a good buying opportunity.