The FOMC made only incremental changes to its policy statement on Wednesday, leaving forward guidance unchanged. The statement signalled a reduction in concerns relating to the external environment, with language about global economic and financial risks dropped.
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However, the statement also acknowledged that, while labour market conditions and household real income have improved further, overall activity and household spending appear to have moderated. Overall, the mixed message has done little to shift the market towards increased pricing for a near-term resumption of Fed hikes.
The Fed’s continued willingness to signal steady policy even as the risk environment and inflation expectations improve leaves the USD vulnerable, particularly vs. the current account surplus currencies.
We remain long EURUSD.
*BNPP maintains a long EUR/USD from 1.1290 targeting a move to 1.16, with a stop at 1.1140.