AUD/USD: 0.9080EUR/USD: 1.2960It was a fairly directionless session today until news of a large injection of liquidity into the Chinese system from the PBOC which gave an immediate boost to risk assets, including stocks and the commodity bloc currencies. A WSJ article, suggesting that the Fed will be less hawkish than previously hoped undermined the dollar somewhat, although is has since stabilised as focus now turns to what the Fed actually do decide to say at today's FOMC. Other action will include the EU & US CPI's and the BOE Minutes. Scotland votes tomorrow
EURUSD was doing comparatively little today, largely ignoring the weaker German ZEW and then the US PPI - which came in at expectations - and seemingly happy to wait for the FOMC, later in the coming session.
The announcement on a Chinese website that China is to boost liquidity to the five largest banks in China to the tune of 500 billion Yuan softened the dollar as markets looked to buy risk assets. It was then further undermined after the WSJ reported that the Fed's 'considerable time' phrase, which has been the focus all week, is likely to remain in the language of the statement when Yellen advises the market as to when interest rates might be expected to rise. The dollar headed sharply lower, sending the Euro straight to 1.3000, which has so far capped it, before it eased back to finish the NY session at 1.2960.
We now wait on the Fed, and until then little is likely to happen, although the EU and US CPI will both be closely watched. Asia will be on guard to see if there are any further clarification from China on the overnight news announcement.
Technically, the momentum in the short term still points to the chance of higher levels for the Euro, and if the sellers at 1.3000 can be overcome then we could be headed above the descending trend resistance and on to the Fibo resistance at 1.3055 (23.6% of 1.3700/1.2858). If the Fed fails to live up to expectations, the Euro could then build up a head of steam and head back to the level from where it broke lower last week at 1.3100/05 and then to the next Fibo level(38.2%)/descending trend resistance (pink line) at 1.3155. Above there would head to the Fibo resistance at 1.3270 (38.2%), which, if seen it would then be a sell, having cut many of the current shorts out of their position.
If the Fed turn out to be as hawkish as the market has been expecting, we are likely to see a quick test of 1.2900 and below. If so, the Euro will head back towards the trend low at 1.2858, below which there is not a lot to stop it heading to 1.2800 and then to the target area of 1.2780 (major rising trend support; from July 2001), which comes just ahead of the 9 July 2013 low at 1.2754.
Wait and see will be the main game today, but even if the Fed are dovish I still think that selling rallies in the Euro is the way to go in the medium term.
Economic data highlights will include:
EU, US CPI, FOMC/ Statement/Press Conference, G20 Meeting.
Jim LanglandsFX Charts www.fxchartsdaily.com
