Euro slumps on Fed taper talk

The Euro remains under pressure in today’s European trading session after comments from Federal Reserve board members about the possibility of a reduction in the stimulus plans currently underway by the Fed to boost the economy

Federal Reserve Vice-Chair Richard Clarida said in a speech that he expects an announcement about a tapering of the Fed’s bond-buying program sometime  this year and risks to his inflation outlook as being to the upside. He also said that a higher inflation rate than the Central Bank’s forecasts may not be temporary and will last longer than the market currently predicts.

Mary Daly of the San Francisco Fed, was even more bullish and said it won’t only be talk, and the Fed could reduce it bond buying program starting this year.

 The news from both board members came as a surprise to investors as a recent speech from Fed president Jerome Powell suggested that there would be no reduction in the stimulus plan or any interest rate hikes for some time to come.

The US dollar jumped on the news and it wasn’t only the Euro that got hammered, but also the British pound and Australian dollar.

On the back of taper talk, the EUR/USD currency pair has broken down through a key support level of $1.1838 and has also travelled outside of the tight trading ranged where it had remained for the past 5 trading sessions.

This is a negative sign as we head into the release of the non-farm payrolls figures tomorrow as it seems the market has once again put emphasis on the Fed reducing their stimulus program.

If we see a strong NFP release the Euro may see a further pullback to the $1.1800 level and we may get a hint of what will come tomorrow with the release later today from the US of the Jobless claims figures which analysts expect to come in much better than last time around.