Markets appear to be cautious ahead of the Fed's potentially consequential monetary policy decision later in the day, as the Eurodollar consolidates following Tuesday's slide.
From a technical perspective, it has rejected the EMA100 and remains vulnerable to the downside, with the 1.1534-23 area looming (last week low - 2021 low), while a bigger drop towards and below 1.1500-1.1492 would probably need a catalyst.
On the other hand, EUR/USD tries to find support today and a rebound beyond 1.1600 would not be surprising, whereas above that, it will encounter the downward trend line from September highs and last month's high (1.1670-92) – a confluence of resistances that may prove harder to surpass and retain.
The economic calendar is packed today, but the Fed monetary policy decision (18:00 GMT) and Mr Powell's press conference (18:30 GMT) stand out. These are expected to impact the pair's trajectory and have the potential to extrapolate moves, increase volatility and create two way-action, requiring caution.
The US central bank's balance sheet has ballooned to more than $8 trillion and high inflation has put pressure on the Fed to dial back its $120 billion/month asset purchases. Fed officials have stated that this process could begin in November or December and the minutes from their last meeting provided an illustrative scenario for tapering pace of $15 billion/month with a conclusion date at around mid-2022.
As such, investors will wait to see if the policy-setting committee (FOMC) will announce today the start date and pace of tapering. Despite the fact that the Fed officials have done a good job in telegraphing their intentions, risk to rattle market's still remains.
If they push against aggressive market expectation for tightening path in the face of fragile labor market recovery it could disappoint them, while a focus on inflation risks could further enhance rate hike bets.
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Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.