Breakdown of the latest developments on the global exchanges
Nov 4, 2021, 10:30 AM GMT

FED's Asset Purchases Tapering Starts Next Month, EURUSD Sinks

FED's Asset Purchases Tapering Starts Next Month, EURUSD Sinks

Bearish pressure on the EURUSD increased markedly today following the November policy decision of the Federal Reserve. This bolstered the demand for the dollar sooner than initially expected. Check out our newest analysis of the EURUSD to read more about the greenback's future path to recovery.

Rising inflation expectedly played a huge role in the November policy decision of the Federal Open Market Committee (FOMC) to commence asset purchases tapering starting next month. FED's decision to start dialling back the pace of its asset purchases is predicated on the stable economic recovery and mounting consumer prices in the U.S. and elsewhere.

The price of the EURUSD reversed sharply following the latest monetary policy decision of the Federal Reserve

The greenback started to increase in value since the release of FED's statement, and the EURUSD has resumed falling. As can be seen on the 4H chart above, the price action reversed from the crossover between the 50-day MA (in green) and the 100-day MA (in blue) before breaking down below the 61.8 per cent Fibonacci retracement level at 1.15871.

The reinvigorated downtrend is headed towards the previous swing low at 1.15250, where bulls stand the best chance of reversing its direction. However, this seems improbable given the strong bearish bias. The MACD indicator represents this.

Even still, the 1.15250 support level remains a major turning point, serving as the lower limit of the major Support Area (in green).

Unpacking the decision to taper the pace of asset purchases

The Federal Reserve followed suit to ECB's decision to ease the pace of its quantitative easing, which is a sign of a global pick-up in economic activity.

"In light of the substantial further progress the economy has made toward the Committee’s goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities."

Nevertheless, recovery continues to be subjected to the development of the virus and persisting supply and demand discrepancies, making it bumpy and uneven. An example of this is the sharp uptick in Chinese manufacturing in October contrasted against a moderate decline in U.S. factory activity over the same period.