The EUR/USD is headed for 1.18. The Federal Reserve did exactly what the market anticipated but unfortunately, that was not enough. The U.S. dollar sold off aggressively in the hour after the monetary policy announcement sending EUR/USD to a 2 year high. The FOMC statement did not disappoint – the Fed left interest rates unchanged, acknowledged that inflation declined and is running below 2%. They also set the stage for reducing asset purchases in September by saying balance sheet normalization will be “relatively soon.” These tweaks were all anticipated but clearly, investors wanted more. So between lofty expectations, a sharp reversal in Treasury yields and the break of key technical levels, the dollar got crushed post FOMC and more losses are likely. Aside from the market’s negative reaction to FOMC, there’s nothing on the Eurozone calendar to threaten the greenback’s rally. No Eurozone economic reports were released today and nothing significant is on the calendar for Thursday. This should allow the euro to extend its gains as the market’s reaction to this week’s Eurozone economic reports show underlying demand for the currency. Traders completely shrugged off weaker PMIs and found relief in stronger business confidence. The shallow declines in the euro tell us that investors are bullish as they believe the European Central Bank is close to tapering asset purchases.

Technically, now that EUR/USD is above 1.17, the 23.6% Fib retracement of the 2008 to 2016 sell-off, there’s no major resistance until the 200-week SMA at 1.18. As long as EUR/USD holds 1.16, the uptrend is intact.