AUD/USD: 0.8900EUR/USD: 1.3765There is little to add today, as the market awaits the result of the FOMC tomorrow, although the dollar has been mildly stronger against the European majors after the U.S. data showed that inflation was flat last month, after slipping 0.1 % in October, and a 1.2% rise yy.
With little new to report and the market generally expecting the Fed to sit on its hands today, - but possibly setting the market up for a move in January, - we should expect another 24 hours of hanging around current levels. The German IFO will be released ahead of the Feds announcement and could cause a few waves, but generally the Euro should generally remain within the 1.37/1.38 band until the Fed take centre stage at the end of the upcoming NY session.
1.3720 again held the downside for the Euro today (low 1.3722), a break of which would suggest a run towards 1.3688 (23.6% of 1.3294/1.3810). Should this fail to hold its ground, then 1.3675 will provide minor support, below which we would head back towards 1.3650 and potentially to Fridays spike low at 1.3617, where the next Fibo support also lies (1.3612: 38.2% of 1.3294/1.3810).
If the 1.3700/20 support remains intact, which is possible given the neutral stance of the 4 hour charts, we could see another run back to 1.3800. As we have said previously, above 1.3800 has proved tricky for the Euro and this will be the case again today, at least until the Fed’s decision. If they do nothing, - and indicate that they will maintain the current policy for the foreseeable future -, then expect the major 1.3830 resistance (25 Oct high/ (61.8% of 1.4940/1.2042) to be taken out in a hurry, triggering large stops and heading on towards 1.3858 (Nov 2011 high), beyond which, the way appears open towards 1.4000, with not too much standing in between.
Overall look for another day of 1.37/1.38 until the Fed, after which the fireworks will begin. Remember that liquidity is beginning to thin out ahead of the holiday season and that moves could become quite exaggerated in either direction – probably both!
My bet is that the Fed do nothing (cue spike higher in the Euro, taking out 1.3830+ stops) before they say that there is likely to be some action in Q1 (cue spike lower in the Eur as the US$ finds new legs, and then chopping around without too much direction while the market tries to make sense of it all)....we shall see!
Economic data highlights will include:
German IFO Business Climate, US Mortgage Applications, Building Permits, Housing Starts, FOMC I/R Decision +MP Statement
