FOMC Up Next

Today’s FOMC meeting will be the big focus for traders and expectations are split as to whether the Fed will give any timing signal on tapering. Fed chairman Powell has recently acknowledged the likely need to begin tapering before year end though is yet to indicate when this will start. The market is currently pegging November as the likely date for tapering to begin. While much focus is being placed on forward guidance today, the more likely driver for market action will be the Fed’s updated dot plot forecasts.

Regardless of the signal around tapering, the new set of rate path projections hold the key to the USD reaction today. If more dots are brought forward (sooner than expected rate hike) or are lifted (quicker pace of rate increases) then USD will be seen firmly higher in response. Alternatively, if dots are mostly unchanged, this will be seen as a sign of uncertainty and likely send USD lower near term.

Where to Trade the FOMC?

EURUSD

The recent sell off in EURUSD has seen the market trading back down to test the 1.1703 level support. With indicators turned lower and around 70% of the retail market currently long, there is room for a break lower here, on any USD upside today, and a continuation of the bearish channel towards 1.1612 and 1.1495 thereafter.