Markets appear to be bracing for a possible shift to a more hawkish message in the FOMC statement today (there will be no press conference or projections released at this meeting).
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Our economics team thinks there is likely to be relatively little change in the statement, disappointing market expectations.While the Committee may acknowledge the recent improvement in financial conditions, this will likely be balanced against mixed economic data and a continued emphasis on downside risks. Overall, while the FOMC will leave its policy options wide open and stress data dependence, there is likely to be little in the way of catalysts for a repricing for a June rate hike.
A result in line with our expectations should leave the USD vulnerable to a reversal of pre-meeting gains and open the door for more weakness vs. the EUR and JPY. We remain long EURUSD heading into the result.
*BNPP maintains a long EUR/USD from 1.1290 targeting a move to 1.16, with a stop at 1.1140.