EUR/USD tumbles on hawkish Fed dot plot chart

The EUR/USD pair is taking a beating after the Fed hiked rates by 25bps as expected, but surprised markets via hawkish interest rate projections for 2017.

The central bank now sees a potential for 3 rate hikes in 2017 as opposed to the 2 rates hikes expected and priced-in by the markets.

2-year treasury yield spikes, yield curve flattens

Yields at the short-end of the curve are highly sensitive to interest rate expectations. Thus, a 5 basis point spike in the 2-year yield and the resulting flatter yield curve is not surprising. The benchmark 10-yr yield traded flat

Hardening of the yields at the short-end of the curve is good news for the US dollar. Further action in the pair depends on what Yellen offers during her press conference, due a few minutes from now.

EUR/USD Technical Levels

The spot dropped to a low of 1.0575 before recovering to 1.06 levels. A break below 1.0578 (Nov 21 low) would open the door to 1.0552 (Nov 30 low) and then 1.0505 (Dec 5 low). On the other hand, the immediate hurdle lines up at 1.07 (zero figure) followed by 1.0796 (Dec 5 high) and finally 1.0835 (50-DMA).