The EUR/USD is on a tear, having rallied more than 600 pips or 5 percent over the past 24 hours. The significance of Fed’s actions continue to resonate over the currency markets and even though we have already seen parabolic moves in the pair, I think it will head higher.

Why?

On December 16th, when the Fed first brought up the prospect of buying U.S. Treasuries at their FOMC meeting, the EUR/USD rose from a low of 1.3629 to a high of 1.4719, an 8 percent move. Now that the Fed is actually following through with buying longer term Treasuries, the impact on the EUR/USD should be the same if not greater.

We have seen a similar reaction in the British pound. After officially announcing Quantitative Easing, the GBP/USD fell 650 pips, a move of only 4.5 percent. However the price action of the GBP/USD has been diluted by the weakness of the greenback and so a more accurate reflection of the market’s appetite for British pounds post Quantitative Easing can be found in EUR/GBP which has rallied 8 percent since the March 5th Bank of England meeting.



Therefore an 8 percent move in the EUR/USD post FOMC would take the currency pair to at least 1.40 from Wednesday’s low, which is my target over the next few trading days.



Kathy Lien is Director of Currency Research at GFT, and runs KathyLien.com.