Dollar seems to be on the defensive ahead of the FOMC meeting tonight

General market theme
Over the past 24 hours price action in the major instruments we monitor in our report was focused around the US Dollar in light of today’s Fed meeting on monetary policy. This is a key meeting for the US currency and the global money markets in general as it is the last chance we have to hear from the Fed on an official statement before the June meeting as there isn’t one scheduled for May. So it will be interesting to see where the balance of bias is among the policymakers and whether they’re still debating a rate hike in two months or not.

The price action in the market indicated that there’s a bias in favor of the bearish side on the back of the deterioration of domestic data in the US that will drive the central bank to remain cautious and not give much hope for a hike at this time which will in turn hurt the Dollar and benefit its currency counterparties and global stock markets.

Price action highlights
The Euro powered forward during yesterday’s session and almost reached the 1.1350 area in light of today’s Fed event but the rally was short-lived as the rest of the day was all about a bearish correction to the downside. The Euro finally settled around the 1.1300 area and it is now down to the way the Fed will decide to comment over the deterioration of data in the US and whether they believe that a June rate hike is still possible or not. Should the Fed back the Dollar then the 1.1220 lows might be revisited while a bearish sentiment will send the Single currency towards the 1.1375 highs of last week.

The Cable edged higher for yet another day and reached the 1.4640 area yesterday on the back of the weakness demonstrated from the Dollar ahead of the FOMC meeting but overnight the UK currency gave up most of its gains. At the time of typing the Pound is trading around the 1.4550 area and if the Fed surprises and supports the Dollar with its statement after the meeting then we could see the Cable tumbling lower with the 1.4500 and 1.4400 levels being the areas of focus.

Focus of the day
Obviously everyone’s focus will be on the FOMC meeting tonight and the accompanying statement revealing Fed’s remarks and forward guidance so we expect the markets to remain cautious up to that point. Earlier in the day the release of the German Consumer Confidence Survey and the UK Gross Domestic Product reports are likely to have an effect on the Euro and the Pound but we shouldn’t expect too much volatility before the Fed event in the afternoon.

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