All eyes on the FED

No change is expected in the policy rate from the 30-31 January FOMC meeting. Currently the market seems to have priced in the probability of the FOMC to remain on hold, at 95.0% as implied by the Feds Funds Futures . Thus market focus is expected to shift to the accompanying statement. We see the case for an upbeat assessment of the economy, despite the recent slowdown of the GDP growth rate. It could be the case, that a more hawkish tone will dominate the statement in order for the Fed to accommodate a possible rate hike in March. At this point, please be advised that the Feds Funds Futures currently imply a probability of 82% for a rate hike in March. Overall the US Dollar could strengthen, especially should the tone support the forward guidance of three rate hikes in 2018. Finally, please note that this will be Chair Janet Yellen’s last FOMC meeting. Also a number of the FOMC members will change as part of the Feds rotating system. It could be the case that the FOMC will have a more hawkish tone from now on as a result of that switch.

The EUR/USD moved in a sideways manner yesterday, staying well within the range set by the 1.2355 support line and the 1.2495 resistance line. The pair could continue to trade in a sideways manner over the short term, however there could be some selling pressures as the US Dollar may strengthen with the release of various financial data and the FOMC rate decision. Also the EUR side of the pair could weaken as financial data, due out today could weaken the EUR. Should the pair come under selling interest we could see it breaking the 1.2355 support level and aim for the 1.2230 support barrier. Should it come under buying interest, we could see it breaking the 1.2495 resistance level and aim for the 1.2600 resistance hurdle.