EUR/USD sitting tight, mid 1.0850s, ahead of the FOMC

• EUR/USD better bid as USD drifts lower ahead of the Fed.
• Risk-on markets weighing on the greenback. 
• Global data continues to disappoint, collectively, central banks pulling out the bazookas. 

EUR/USD is currently trading at 1.0859 having travelled between a range of 1.0817 and 1.0874, slightly higher on the day by 0.38% as we head into the Federal Open Market Committee and the Federal Reserve's interest rate decision at the top of the hour. 

Risk-on ahead of the Fed

Overnight, European equities were a touch higher (EuroStoxx50 +0.2%) and the stage was set for a risk-on session on Wall Street with futures pointing towards gains. At the time of writing, the S&P 500 is +3.04%, or 89.90 points higher and oil prices are higher too, +15%. Gold is down 0.46% and the DXY is also -0.31%.

The data in Europe has been somewhat stronger than expected in the Harmonised German Consumer Price Index arrived at 0.8% vs 0.5% expected YoY (April). However, the US data was tainted by the Gross Domestic Product Annualised for Q1, -4.8% vs -4% expected and vs 2.1% prior, with social distancing taking a major toll on the US economy. 

The Fed is today's main focal point though. No new major announcements at this meeting are expected and the market has priced in the dovishness. "Throwing the kitchen sink sounds like an understatement to what the Federal Reserve has done so far in face of the coronavirus crisis," Yohay Elam, Senior Analyst at FXStreet wrote in today's preview, entitled: Fed Preview: Taking a break after two months of madness? Addicted markets may fall, dollar rise

Bullet points:

• The Federal Reserve is set to leave its policy unchanged in the first scheduled meeting since January.
• Some may fear the bank has run out of ammunition after massive moves in response to coronavirus.
• Stocks may fall and the safe-haven dollar may rise in response. 

ECB up next, pulling out the bazookas

Meanwhile, we will see more from European data tomorrow and it will be the European Central Bank's turn to step up to the plate again. Guidance is unlikely to change but there could be some tweaks to PEPP buying programme.

ECB's governor, Christine Lagarde, "can help by increasing the size of the pandemic purchase programme, perhaps by another 500 billion euros, to remove any doubt it might run out this year. She can also push the rate at which lenders tap longer-term lending facilities even further into negative territory, or buy some junk-rated bonds," – the NASDAQ published, adding:

 All this may not happen at Thursday’s policy meeting. But the problem is, like her predecessor Mario Draghi, the more Lagarde does, the more likely European Union leaders are to squabble and procrastinate.

On the outlook, there will be no rose-tinted glasses from Lagarde who will most probably emphasize severe downside risks to the growth as well as inflation outlook. The eurozone's CPI is expected ahead of the meeting to fall in at -3.5% QoQ. GDP is expected -3.1% YoY vs 1% and -3.5 QoQ.

• ECB Interest Rate Decision Preview: Bank expected to unveil new economic support measures

EUR/USD levels