EUR/USD price swings after the Fed hiked as expected and announced its balance sheet reduction plan nL2N2WV11U resolved with bulls taking charge during Chair Jerome Powell's presser, but some downside risks remain.
Powell's presser was initially taken as hawkish, driving EUR/USD briefly into negative territory on the session.
Sentiment quickly shifted when he said 75 basis point hikes were not being actively considered nW1N2UD01Q.
interest rates EDM3US2YT=RR turned negative on the session, which drove the dollar broadly lower, helping EUR/USD strike a five-session high of 1.06265 on EBS after piercing the 10-day moving average.
EUR/USD longs should remain cautious, however, with caution flags from German-Italian yield spreads and technicals.
The German-Italian 10-year spreadDE10IT10=R, which EUR/USD is negatively correlated with, hit its widest in two years and the trend shows no signs of abating.
Technicals suggest downside risks remain.
The 10-DMA is helping to cap gains and the rally off the April 28 low appears to corrective in nature as a bear flag continuation pattern is forming.
EUR/USD longs will likely need a downside surprise to the April U.S. jobs data if they expect further upside for the pair.
An above-estimate jobs report could erase recent EUR/USD gains and usher in another down leg.
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