Weekly Outlook: FOMC In Focus

According to the latest CFTC report, the net EUR short position decreases by 85% to USD 1.3bln, smallest since Feb 12th. Furthermore, the net USD long position decreases by 29% to USD 28.1bln. The report itself indicates that market participants are scaling back expectations of the Fed tapering its QE purchases and that the looming FOMC meeting will be used to convey this message. In turn, this potential USD weakness will most likely lead to EUR supportive flows. In terms of technical levels, supports are seen at the 10DMA line at 1.3233, 1.3177 and then at the key 1.3000 level. On the other hand, resistance levels are seen at the 21DMA upper Bollinger level at 1.3427 and then at 1.3500.

GBP/USD

The pair is due to remain a by-product of the risk on/off sentiment which continues to be driven by a combination of expectation that the Fed may soon begin to taper its QE operation, as well as the uncertainty stemming from the BoJ’s aggressive policy easing actions. Much of the attention this week will be on the looming FOMC decision, in particular whether the Fed will signal that markets have gotten too carried away with QE tapering talk and instead will signal that easy monetary policy stance will continue. Technically, support levels are seen at 1.5521, 1.5488 and then at the 61.8% retracement of the 1.5008 to 1.4685 move at 1.5426. On the other hand, resistance levels are seen at the 61.8% retracement of the 1.6380 to 1.4832 move at 1.5789 and then at 1.5801, which is the 21DMA upper Bollinger level.

USD/JPY

The pair finished the week sharply lower, while the Nikkei 225 index officially moved into bear market territory, after the BoJ kept monetary policy unchanged and retained plan for JPY 60-70trl annual rise in monetary base. The BoJ left funding terms unchanged after JGB yield volatility and refrained from extending the duration of fixed rate fund-supplying operation. Much of the attention this week will be on the FOMC and in particular whether the accompanying statement will indicate that the FOMC are nearing the moment that the tapering of purchases will begin to take place. According to the latest CFTC report, the net JPY short position decreases by 13% to USD 9.5bln.