It is widely expected that the Federal Reserve will maintain a steady policy course when it concludes its two-day FOMC meeting today. Fed officials are not expected to signal a reduction in support for the U.S. economy but will debate how to scale back massive bond purchases when the time comes.
Officials have pledged to maintain bond buying until the economy shows “substantial further progress” on inflation and employment as it recovers from the pandemic.
Meanwhile, pressure on Chair Jerome Powell to start the taper sooner rather than later has probably been eased by the recent slide in bond yields, as investors worry the spreading delta coronavirus variant could sap the recovery.
While we do not expect any major surprises from today’s policy decision, we prepare for potential price breakouts in both directions.
The cable surged towards 1.39 and traders wonder whether this could be the limit. Despite the fact that the pair entered overbought territory in short-term time frames, it would need an unambiguously hawkish Fed statement to derail the recent bullish movement. In other words, as long as the pair holds steady above 1.37, chances remain in favor of a breakout above 1.39 and a run for 1.40.
As expected, the euro strengthened towards 1.1850 and we anticipate bullish momentum to continue towards 1.1970-1.20, unless there is a hawkish surprise from the Fed which is less likely today. On the downside, the 1.1730-1.17 support remains intact.
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