Title: Pre-FOMC USD Price Action: Key Setups for EUR/USD, GBP/USD, USD/CAD, and USD/JPY
Original Author: Matt Weller, CFA, CMT
Source: Forex.com
The upcoming U.S. Federal Open Market Committee (FOMC) meeting is expected to be one of the most closely watched monetary policy decisions of the year. With markets on edge over rate expectations and inflation outlook, foreign exchange traders are paying close attention to the U.S. dollar’s positioning against major currency pairs. In his latest analysis, Matt Weller, CFA, CMT, charts the potential trajectories for the U.S. dollar ahead of the Federal Reserve’s decision, analyzing several high-profile USD currency pairs, including EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
Overview of the FOMC’s Influence on USD
The FOMC meeting scheduled for Wednesday is significant. Although markets do not expect an immediate rate change, traders are looking for any indication of timeline changes on future rate cuts and a revised economic outlook. The Fed’s corporate communication, including Fed Chair Jerome Powell’s post-meeting comments, the dot plot, and projections, could have a lasting impact on dollar performance.
Current market expectations include:
– No change to the federal funds rate at this meeting
– A more cautious stance on rate cuts as inflation readings continue to linger above the Fed’s 2% target
– Market pricing of fewer and later rate cuts compared to earlier this year
With Treasury yields fluctuating and equity markets adjusting expectations, currency markets are reacting accordingly. Weller offers a technical view of several USD pairs to highlight how traders can position around the event.
EUR/USD – Testing Resistance Ahead of the Fed
One of the most actively traded currency pairs, EUR/USD, has been showing signs of recovery lately, with buyers stepping in after the pair found support around the 1.0700 area. However, the upside remains limited due to persistent macroeconomic divergences between the Eurozone and the United States.
Key technical factors:
– The daily chart shows a short-term uptrend forming since mid-May, characterized by higher lows
– Resistance looms in the 1.0800 to 1.0830 zone, where price action faltered in April and May
– A rising 20-day exponential moving average (EMA) offers dynamic support near 1.0750
– The Relative Strength Index (RSI) remains neutral, not yet overbought or oversold
Possible scenarios:
– A hawkish Fed and strong USD could send EUR/USD back towards the 1.0700 support or lower
– A dovish tone from Powell may lift EUR/USD above 1.0830, paving the way for a test of 1.0900 levels
Overall, the pair remains range-bound on a broader scale, and any break above or below these areas could define medium-term sentiment.
GBP/USD – Back in Bullish Territory, but Vulnerable
The British pound has reclaimed significant ground against the U.S. dollar recently, with GBP/USD climbing back above the 1.2700 mark. A growing sense of optimism around UK economic momentum, particularly from positive GDP figures and easing inflation concerns, has helped the pound.
Technical backdrop:
– GBP/USD is challenging the upper end of a multi-month consolidation, with the 1.2800 level acting as key psychological resistance
– Price action has moved above both the 50-day and 200-day moving averages, signifying strengthening momentum
– Momentum indicators like the MACD and RSI are in bullish territory but not overextended
– Short-term trendline from the March lows remains supportive near 1.2650
What to watch:
– A breakout above 1.2800 opens the door to a push toward the yearly highs near 1.2900
– Downside risks increase if the USD strengthens, targeting previous support zones at 1.2650 and
Read more on EUR/USD trading.