Fed likely to exercise a ‘dovish hike’ tonight, good time to long EUR/USD?
US Dollar could be vulnerable to more downside after tonight’s FOMC meeting as little catalyst to support a stronger dollar, according to our analysis.
- FOMC is widely expected to raise the target range for the federal funds rate 25bps to 1.00-1.25%. In other words, we expect some profit-taking in dollar long positions.
- There is also a risk the FOMC might lower their longer term median Fed funds rate estimate.
- There are possibilities that Fed members might follow the footsteps of ECB, which means they could lower US core PCE inflation projections and that will weigh on US interest rate expectations and the USD.
- US Dollar could be also impacted by the US economic data released overnight, traders will be focusing on the US May CPI and retail sales reports.
- Flows might jump into buying EUR/USD after the FOMC meeting. Pair remains solid near 1.1200 amid favourable Eurozone economic activity. The June German ZEW survey recorded at 88, higher than earlier estimates.
- EUR/USD may climb towards 1.1290 if Janet Yellen does not express excessive optimism in U.S. economy later tonight.
Fullerton Markets Research Team
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