FOMC meeting: yes, it will be hawkish; no, it won't matter

The US Federal Reserve has begun its two-day meeting, a "non-live" one, given that there's no press conference scheduled, and that officers won't offer any forecast through the dot plot. The US Central Bank is expected to maintain its benchmark rate unchanged, floating between 0.25% and 0.50%, which means that market's attention will center in the wording, of the accompanying statement. Overall, expectations are of a slightly hawkish tone, backed by Q2 and early Q3 data, suggesting the economic slowdown seen late 2015/early 2016 has been averted.

In a negative-rates world, a hawkish stance should be more than enough to keep a currency strong, although things are not that easy. The uncertainty triggered by the UK's decision to leave the EU, and the constant deflationary pressures major economies suffer, have left the financial world clueless on what's next.  But one thing is for sure: the US economy is growing steadily, and the dismal May employment report seems to have been a one-off bad number in a sea of green.

Having said so, how would the US bear with a stronger dollar in a depressed world? is a tough scenario, really tough, but mostly means that while many believe that positive data will force FED's hand into a rate hike, the more I believe strong data is doing enough for the greenback already, in the current scenario, and therefore the FED will remain on-hold for longer

At this point, chances of a hike are of 20% for September, which is a live meeting, but with elections around the corner, chances are further limited. Mostly, no rate hike is on the table until the second half of 2017. What can change this scenario is improving economic conditions in the EU, and a orderly Brexit, both things, still hide in the mist.

Anyway, a strongly hawkish tone will likely result in the dollar edging higher this Wednesday, particularly against its European rivals, with the common currency struggling around 1.1000, the Pound weighed by its self-weakness, and the CHF nearing parity, and we are probably not wrong if we suspect the SNB is behind this last. 

Commodities are also suffering, but a strong tone will affect the most gold, which can fall down to $1,250.00 a troy ounce. The JPY is just playing a different game, and won't be giving definitions until Friday's BOJ meeting.

EUR/USD technical outlook, levels to watch

The EUR/USD pair stands at the lower end of its latest range, clearly bearish despite the lack of momentum. Summer in the north hemisphere is also to be blamed for the low trading volumes. The daily chart for the pair shows that lower highs have been a rule for the last two weeks, and that it's meeting selling interest on approaches to a bearish 20 SMA,  currently around 1.1050, whilst the technical indicators head nowhere, but remain within negative territory. This week, the pair has traded as low as 1.0951, the immediate support, followed by the post-Brexit low of 1.0910. Below this last, the pair has scope to extend its decline down to 1.0800/40, a major static support area clear in the weekly chart.

If the FED disappoints and the pair surpasses 1.1050, the next resistance is the 1.1100/20 region, followed by 1.1189, the post-Brexit highs. It will take a daily close above this last to confirm an upward extension, quite unlikely at this point given that there's nothing supporting an EUR bullish case.