The U.S. dollar weakened against the euro and British pound before the Federal Open Market Committee's decision today. While investors are holding back until the Fed is giving a clear signal to the market, there is a presumption that the Fed is still showing restraint in terms of future rate increases. Accordingly, many market participants assume that any new insights or wording changes could be absent in today's FOMC statement. This presumption weakened the greenback and in the event of an unchanged statement we expect today's monetary policy decision to be a non-event for traders.
Nonetheless, there is still a glimmer of hope for the U.S. dollar. If Fed officials set the stage for a possible rate hike at their next meeting in June, investors will rush to buy dollars, increasing the odds for tightening in June. Even though the statement may seem to be more hawkish, officials will make clear that the decision whether to raise rates in June remain data dependent. Whatever the case, we will focus on the technical picture and try to make the best out of any market movement.
EUR/USD
Taking a look at the weekly chart we see the euro trading near its upper bound of its medium-term price range. Within that range we see two possible scenarios.
Bearish scenario: If the euro is not able to take the hurdle at 1.1350, we could see a reversal, sending the pair lower towards 1.1270 and 1.1250. If the euro breaks significantly below 1.1240, it may drops towards 1.1180 and 1.1150. Below 1.1140 lower supports are seen at 1.1050 and 1.10.
Bullish scenario: If the euro breaks significantly above 1.1360, we could see a rally towards 1.14 in a first step and farther towards 1.1520 in a second step. The 1.15/1.1520 level is seen as a key resistance for the EUR/USD and once this barrier is breached to the upside, there is no important resistance until 1.1650 and 1.17.
GBP/USD
The pound sterling is currently trading within its resistance zone between 1.4670 and 1.45. If the pair is able to break above 1.4670 it could head for a test of 1.47. Above 1.47 there is no major resistance until 1.49 and 1.50. However, if the February high at 1.4668 remains unbroken, GBP could start a reversal towards 1.43.
The U.K. Gross Domestic Product is scheduled for release at 8:30 UTC and could trigger some volatile swings in the GBP/USD.
Before the FOMC statement is due for release at 18:00 UTC we will keep an eye on U.S. Pending Home Sales, scheduled for release at 14:00 UTC which could have an impact on the USD.
Here are our daily signal alerts:
EUR/USD
Long at 1.1360 SL 25 TP 35, 100
Short at 1.1280 SL 25 TP 30, 60 (100)
GBP/USD
Long at 1.4616 SL 25 TP 30, 70
Short at 1.4540 SL 25 TP 20, 60 (100)
We wish you good trades and many pips!
Disclaimer: Any and all liability of the author is excluded.