FOMC Comments May Set EUR/USD Direction

Fundamental Outlook
The FOMC is widely expected to keep their benchmark interest rate unchanged at 0.25% as tight credit hampers small business growth amid slack in bank lending, and threatening the ability of small businesses to finance expansion and new hiring. Indeed, bank lending continues to linger as lenders remain cautious following the recent downturn in the financial markets, leading the revolving debt to post its largest decline in three months in February as the reading fell by $9.4 billion, the Fed statistics office showed. Meanwhile, continued and initial claims readings were lower than previous reckoned for the week ending April 17th, while the housing market experienced a breath of fresh air in March, with new and existing home sales figures rising 27% and 6.8% respectively from the previous month.

Policy makers are likely to maintain the key overnight lending rate at its current low amid forecasts for consumers prices to remain subdued for some time as significant slack in resources continues to restrain cost pressures, with the Committee expecting economic conditions and stable inflation prospects to warrant low levels of the federal funds rate for an “extended period.”Meanwhile, mounting speculation that members of the FMOC will push the Fed to begin selling assets from its balance sheet adds increased importance of this week’s meeting. Looking ahead, the FOMC will monitor both the financial developments and the economic outlook as the central bank maintains its dual mandate to ensure price stability while promoting full-employment, and whilst FOMC members commented that the decline in core inflation has been swifter than previously surveyed, the full employment side will be the dominant focus going forward. Therefore, if Chairman Ben Bernanke presents a dovish case in his succeeding statements, we may see dollar weakness. On the other side of the spectrum, hawkish remarks with an eye towards tightening could boost the greenback’s prospects. 



Technical Outlook



EURUSD: Currently trading in a downward tight channel, the pair recently retreated from the upper trend line and focus still remains towards pivot support of 1.3256 which may indeed by wave 5. Moreover, it is noteworthy that the pair may post short term gains towards resistance at 1.3456 as our speculative sentiment index signals for further increases, while the euro sentiment turns from a bearish extreme.

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Written by Michael Wright, DailyFX Research
Questions? Comments? Concerns? Email me at mwright@fxcm.com