The FOMC will wrap up its 2-day meeting during the 6/18 US session. This one is important because it will include the central bank’s growth and inflation forecasts for the next 2 years. This should help shape investor’s expectations of monetary policy. Most likely the bank will shave another $10B off its bond purchase program, and maintain the key interest rate at near 0%. Investor’s forecast the next rate hike around mid-2015. If the FOMC hints at an earlier hike, it is hawkish and the USD should strengthen. If the projection is for later in the year, the FOMC is dovish, and USD should fade. Look for current trend, or lack there-of to continue if Yellen is purposely vague in her language, and the economic projections do not hint at any change in rate expectations.
EUR/USD has been consolidating between 1.3512 and 1.3575 before price pushed to 1.3585 to begin the week. Price action also settled back around the central pivot area of the consolidation range. As price pushes above the central pivot area, the EUR/USD looks like it is trying to form a bottom.
With the market projecting FOMC’s rate hike around mid-2015, a shift in that expectation could give USD pairs a shake. If the FOMC is hawkish, and sounds like it wants to raise rates earlier in the year, the USD should strengthen and the EUR/USD should remain pressured. Price action should attack the central pivot area, with focus back toward the 1.3512 low, and then the 1.35 handle, and the 1.3476 low on the year. If the FOMC does not shift market expectations of the rate hike, and price holds above the central pivot area around 1.3550, then EUR/USD is likely in a bullish correction, and would have the 1.3620, and 1.3670 levels in sight.
USD/JPY was bullish after US inflation data for May came in hotter than expected. However, as you can see in the 1H chart, USD/JPY is trading within converging trendlines and thus remains directionless outside of that intra-session outlook.
(usdjpy 1h chart 6/18)
The fact that USD/JPY is trading around 102 suggests the market is not pricing in anything new. The rate hike expectation remains mid-2015, and the strength of USD could shift a bit as the rate hike forecast shifts around the mid-2015 mark. If today’s FOMC statements and economic projections point to an earlier rate hike, USD/JPY should have the fuel to break and hold above the falling trendline in the 1H chart, to challenge key resistance in the 102.80-103 area. If the rate hike expectation is unchanged, USD/JPY might still extend higher, but has a central tendency towards 102. If the FOMC sounds dovish, than the focus might return towards the 100.76 low on the year, especially if price action follows with a drop and hold below 102.
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