Currency Pair Overview: Dollar Awaits Fate From FOMC

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Overall, the currency market declined against the dollar during early European trade, but shortly after the BoE Inflation Report was released, some of the major pairs started recovering the declines seen earlier and even posted some small gains. Ahead, the market is preparing for the FOMC interest rate decision and statement, which are likely to play a critical role in the forex market. Some are even arguing that these two major releases may even help jump start a trending forex market again, one in which the dollar will strengthen across the board. Such suppositions are supported by the macroeconomic data, to some extent, which points out that the U.S. economy is recovering faster than the European economy is. If the FOMC statement even hints at the fact that the U.S. economy is recovering, then the dollar may get a strong boost, which would help it recover some parts of the declines seen since early March.

The euro (EUR/USD) saw substantially stronger momentum on Wednesday than in the prior days of trading, as the market is driven by an economic calendar loaded with top tier reports. During the early European session, the euro plunged 70 pips, testing a trend-line that has held the pair for a month and running into the 50-day moving average. The pair reversed soon after, recovering every pip lost earlier in the day. Going forward, the euro is likely to experience some volatility in trade. 

The pound (GBP/USD) tried to break below the 50-day moving average shortly after the London open, but failed to find the momentum to sustain the downward trend. Shortly after, the pair ran into volatility as the market prepared for the BoE’s Inflation report, which indicated that the bank expects inflation to rise around 1-2% in 2010, while anticipating the economy will return to growth by late 2009/early 2010.

The aussie (AUD/USD) showed a lot of weakness even from the first few minutes of trading, something that could also be seen during the prior sessions. The pair plunged as much as 120 pips during the Asian and the European sessions, but eventually retraced after it bounced from the trend-line that has held the pair for three weeks.

The cad (USD/CAD) moved higher for the fifth consecutive day on Wednesday, as the dollar showed signs of strength across the board. The recent rally confirms the cad’s trending characteristics, which could have been seen very well over the last few months of trading, as it was the only major pair able to develop and sustain a trend. 

The swissy (USD/CHF) moved only 40-pips during the overnight session, having one of the weakest trading sessions of the last few months. The reasons behind this are still unsure, but it happened even though the other major pairs saw relatively strong momentum overnight. 

The yen (USD/JPY) declined approximately 90-pips during the overnight session, but the pair recovered an important part of those declines as the equity markets started to retrace. Moreover, the yen bounced from the 95.00 area, which is surrounded by important support areas, including the 20 and the 200-day moving averages and a trend-line that has held the pair for three weeks. The yen will need very strong momentum to break below the 95.00 area.

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