The Euro hit a record high of 1.3985 after the Federal Reserves monetary policy decision. Even though there are a lot of option barriers at 1.40, a test of that level seems inevitable.
The monetary policies of the European Central Bank and US Federal Reserve are growing further and further apart, which provides a fundamentally sound reason for the EUR/USD to continue to rally. However Euro traders should be warned. As an export dependent region, a strong Euro will eventually take a bite out of growth. The German ZEW survey dropped from -6.9 to -18.1, reflecting a growing sense of concern amongst analysts and economists. The Feds decision to lower interest rates by 50bp will probably keep the European Central Bank on hold for the remainder of the year as well. Yet, as long as the ECB does not turn dovish or lower rates themselves, the Euro could continue to remain firm.
Written by Kathy Lien, Chief Currency Strategist of DailyFX.com