Nobody seriously expects the US Federal Reserve to move on interest rates when they complete their scheduled meeting later today. This however remains not only the key market event of the day but it also contains the most potential to move the US Dollar that we have seen in many weeks.
Right now the Dollar Index (DXY) has largely flat lined just shy of a very solid and very long term support line at 0.7916. It will take an event of the magnitude of the today’s FOMC meeting to provide enough short Dollar momentum for the DXY to make any serious attempt to break below this key resistance line. Dollar downside won’t be driven by any announcement on monetary policy, nor is there any scope for an increase in the pace of Fed tapering. Any downside risk will come from the Federal Reserve’s Monthly Bulletin which is published at the same time as the FOMC announcement (6pm GMT). The key element to watch for in this report will be any slight downward revisions to the Feds growth forecast or any sizeable downward revision to the inflation projections.
Business as usual is the most likely outcome from today’s FOMC meeting, however there is an outside chance that the Fed will choose to slow the pace of tapering. Last month the
Fed purchased $65bn worth of US Treasuries and Mortgage Backed Securities, the consensus is that this month they will announce a scaling back of this to $55bn. Any number higher than $55bn will indicate a backing away from monetary tightening and prompt a sell off in the Dollar.
EUR/USD is currently approaching the end of a very well formed 6 day symmetric triangle pattern. A breakout is imminent with the potential for a 40 point run or more. A symmetric triangle can equally produce a breakout on either side, although in this case all the pressure appears to be on the topside. The catalyst for the breakout is most likely to come from the FOMC announcements later today. If the pattern is still in place ahead of this announcement then a EUR/USD buy order just above 1.3930 should produce a result.
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