Fed May Shift Towards Slower Pace Of Interest-Rate Hikes

Dear Traders,

In the end the market reaction to the FOMC statement was muted and has left much do be desired for currency traders. While the statement was a communications challenge for the Federal Reserve it came in as balanced as possible. Particularly noteworthy is the shift into a wait-and-see mode, which signals a less-hawkish forward guidance. While an interest rate hike at the next FOMC meeting in March is less likely Fed policy makers have left the door open for a March. Officials said that rate increases will depend on how the U.S. economy performs and said that they were “closely monitoring global and financial developments”.

In a nutshell, the Fed may be inclined to move forward at a slower pace of interest-rate hikes but the main focus remains on labor market and inflation data.

The EUR/USD did not show much movement yesterday, trading firmly around the 1.09-mark. For the time being, we expect swings to be muted unless the euro breaks above 1.0960 or vice versa, breaks below 1.08 and 1.0770. Upwards movements could be capped at 1.0925 and 1.0955 while downward swings may be limited until 1.0870 and 1.0820 in the short-term.

The German Consumer Price Index is scheduled for release at 13:00 GMT, a report which could affect the price action in the EUR/USD.

The British pound continued to trade lower against the greenback. We generally favor a bearish stance in GBP/USD and our focus is on the 1.42-barrier. A renewed test of that support level may reinvigorate fresh bearish momentum towards 1.4170, 1.4150 and 1.4120. Current resistance levels are seen at 1.4285, 1.4308 and 1.4340.

U.K. GDP numbers are due for release at 9:30 GMT and if GDP is lower than expected, sterling could easily slide below 1.42.

Important U.S. data are scheduled for release at 13:30 GMT with U.S. Durable Goods Orders, followed by Pending Home Sales at 15:00 GMT.

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