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Forex Trading Strategies.USD crumbling ahead of tonight's FOMC meeting - will the outcome of the meeting accelerate the action or reverse it?
We vote for an acceleration toward the weak USD side, though the reaction may not be immediate. Fantastically important meeting on tap. EUR/USD may be en route to 1.2150+
MAJOR HEADLINES – PREVIOUS SESSION
• US Monthly Budget Statement for November showed a -$83.1B shortfall vs. -$80.0B expected
• New Zealand Food Prices rose 0.3% in November vs. 0.2% expected
• Australia November Business Confidence rose three points to 8.
• Tokyo Condominium Sales declined -2.3% in November vs. a 8.9% rise in October
• China November Industrial Output rose 16.6% vs. 16.0% expected
The market remained in narrow ranges overnight after yesterday's dramatic weakening of the USD.
THEMES TO WATCH – UPCOMING SESSION
Yesterday certainly looked like a key day as the market couldn't seem to hold itself back for the outcome of the FOMC meeting and the "leading indicator" of the huge GBP/USD break higher late last week proved accurate as EUR/USD finally followed suit and smashed through the 1.1850/1.1900 zone with ease yesterday. Importantly, the USD/JPY trend line was also broken on the same day, and this all adds up to a key, broad USD break lower that only requires a "hold" through the meeting tonight for a confirmation of the break (and confirmation that yesterday's move wasn't just a "run on stops" or the like). The first target higher for EUR/USD is now the 1.2150/1.2200 area, and 1.1900 is first support. For USD/JPY, 118.30 is the next key area to the downside.
So what do we look for tonight at 19:15 GMT? As we have stated in the past, the key focus will be any adjustments to the monetary policy statement, which must be "loosened up" soon to allow the Fed more flexibility as the fed funds rate has now moved well into the neutral zone by now in our opinion, and is by no means "accommodative" and longer. A hike to 4.25% is a given. The question is how strong the language change will be. We believe the fed will likely adjust the statement in such a way that it will provide the impression of maximum room for flexibility going forward - in other words, we don't expect a statement that indicates in clear language that "we are now stopping as the rate is neutral." Rather, some kind of indication of "moving when appropriate in the future". Regardless - this is a hugely important meeting.
And as a sideshow, we also have UK inflation data (EUR/GBP probably far too low as EUR/USD needs to play catchup with GBP/USD), the German ZEW and US Retail Sales (expected at 0.4% and -0.1% less Autos). But we stress the word "sideshow" as the FOMC meeting and statement is obviously the main event.
Note: the support/resistance levels used in the matrix’s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
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