Markets remained largely calm on Tuesday with the U.S. dollar steadying ahead of the highly anticipated Federal Reserve decision today at 18:00 UTC. Could this be the calm before the storm? Maybe, because there is a high risk of volatility in all dollar crosses. The markets are pricing in no chance that the Fed will hike rates in this quarter but the focus is on the rate path and QE reduction plans. The central bank is due to update its forecasts for growth, employment and inflation and Fed Chair Yellen will hold a press conference following the Fed decision. Market participants speculate on a less hawkish outcome from the Fed statement but there is potential for surprises. The FOMC’s dot plot, a chart showing the Fed’s expectations about future interest rates, will also be in focus. The market currently sees an only 50/50 possibility of a year-end rate hike in December and if Fed members maintain their hawkish stance and still signal an additional rate hike this year, dollar bulls could be in a hurry to price in such scenario.
Furthermore, investors await details on how the central bank will unwind its $4.5 trillion balance sheet. So, all in all there is a high-risk potential for the greenback and as usual, we are preparing for both bullish and bearish scenarios.
EUR/USD inched higher and is currently hovering around 1.20. We still see the currency pair trading within its recent price range between 1.21 and 1.18. If the euro rises above 1.21 we anticipate a higher target at 1.22, whereas on the downside, we will focus on a break below 1.1870 and further 1.1820.
There is a higher likelihood for upcoming breakouts in this pair. From a technical perspective, we see a symmetrical triangle in the 4-hour chart which could predict upcoming price breakouts to either side. Based on that triangle we will focus on prices above 1.3530 for buying opportunities and, on the other side, on price below 1.35 for selling opportunities. Current supports are seen at around 1.34 and 1.33.
Sterling trader should keep an eye on U.K. Retail Sales due at 8:30 UTC but the main risk event will be the Fed decision in the evening.
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