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Wild Wednesday: Anything Is Possible, Even A Disappointment Despite Fed Tightening

Dear Traders,

It’s Fed-decision day and the waiting finally comes to an end. After several days of range-bound conditions and low volatility, traders now prepare for volatile swings and trend-setting movements. The probability of a Federal Reserve rate hike is completely priced in while the U.S. dollar shrugged off the bullish bias. The greenback’s reluctance to commit to further tightening suggests that dollar bulls might be unimpressed by the FOMC policy announcement.

The Fed’s monetary policy decision will be announced at 18:00 UTC but the impact on the dollar could be muted as traders appear to be well prepared for a March rate hike. The spotlight however, will be on the following press conference with Fed Chair Janet Yellen and revised rate path projections. Economists expect the path for rates to include three hikes this year and in case of a steeper tightening path, the dollar will rally. However, there is a greater potential for disappointment and if Yellen sounds more balanced, preferring a wait-and-see mode, the dollar will be vulnerable to losses.

All eyes will be on the FOMC announcement but before that major risk event, traders should also pay attention to U.S. Consumer Prices, scheduled for release at 12:30 UTC.

Apart from the Fed decision, elections in the Netherlands will draw the focus back on the euro’s resilience. The Dutch vote is the biggest test of the strength and resilience of the populist surge this year. The euro could therefore tend to fluctuate sharply towards the end of the American trading session.

EUR/USD

From a technical perspective, we expect bearish momentum to accelerate if the euro falls below 1.0570. Lower targets could then be at 1.05 and 1.0380. A short-term resistance is however seen at around 1.0650. If the euro significantly breaks through that resistance-level we may see further gains towards 1.07 and 1.0790.

 

GBP/USD

Today’s short squeeze in the British pound was an impressive reminder that there is still potential for exaggerated movements. The pound surged to a high of 1.2257, which is considered a current resistance-zone in the cable. Above 1.2260 we may see further gains toward 1.23 but everything is possible today and the price action will also hinge on the appetite for USD. We generally anticipate the cable to remain within a range between 1.24 and 1.21 for the time being. On the bottom side, the pound will need to break below 1.2080 in order to invigorate fresh bearish momentum.

The U.K. employment report is due for release at 9:30 UTC and could have a minor impact on the pound.

 

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