Dollar on the forefront as traders focus on the upcoming FOMC meeting

Friday was not a quiet session for the currency markets and the major instruments we monitor in our daily report remained pretty active and volatile in some cases. The price action we monitored in most of them was expected but we’ve also seen some surprises especially with the way the Euro traded on the last session of the week.

At the beginning of this week however we expect further volatility and we’re very interested in the price action of the major currency pairs, indices and metals and the reason for that is that we expect the following sessions to be important for the Dollar. The US currency is a part of the major pairs we monitor while it plays a significant part on the way global stock indices and metals trade.

So moving closer to the FOMC meeting and rate decision on Wednesday we expect traders to really focus their attention on the Dollar during the coming sessions leading up to Wednesday’s event. The US Dollar has been trading strong against its peers over the past weeks and even though we’ve seen signs of a correction during the previous week we believe that the buck will once again trade higher.

The Fed is planning on raising their key interest rate soon, definitely some time before the end of 2015 and we believe that they will take this meeting and the press statement following it as an opportunity to prepare the market for this eventuality. Traders will be focused on that statement and volatility is expected to be elevated with strong gains for the Dollar should the Fed not disappoint expectations.

Taking a look at Friday’s trading action, the Euro attempted to break lower but reversed its flows and ended the day near its previous highs. This is considered a “fake break” to the downside but it should not disappoint any traders looking to short the currency. The outlook for the Single currency is pointing lower for two reasons: the expected Fed meeting on Wednesday and the new round of negotiations between Greece and its creditors where nobody can guarantee smooth talks. So even though the Euro is spiking higher this morning we’re more focused on the downside this week.

The Cable was under pressure at the beginning of the day on Friday but managed to recover later in the day and ended trading just above the 1.5500 level. The momentum in the currency has been pointing lower and with more gains expected for the Dollar we could see a further retreat for the Cable this week. However we should keep in mind that there is strong support for the Pound as well so the ride might a little bit bumpy.