- The euro is holding within a tight multi-day range ahead of the FOMC decision, sitting near 1.16 as traders wait for clarity on rate policy.
- Movement will hinge on the press conference tone, with fading rallies favored unless a dovish shift sparks a breakout.
The euro has rallied a bit during the early hours on Wednesday, but we are still in the same range we have been in for three or four days now. And that's not a huge surprise because we, of course, have the Wednesday FOMC interest rate decision coming out in about four hours. And that will have a major influence, maybe not on the euro, but on the dollar. And that's what matters here.
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Ultimately, this is a market that I think is stuck between the 1.14 level at the bottom and the 1.18 level at the top. And as we are hovering around 1.16, we're right at fair value, at least for what the market thinks right now. The question here is whether or not the Federal Reserve press conference will have a lot of hesitation when it comes to rates, because if he starts to use things like “data dependent” in the statement, that probably sends the US dollar quite a bit higher. After all, that means that we are not on autopilot to start cutting rates again, like the market wants to see.
Potential Federal Reserve Impact
Furthermore, there is the very real possibility that the United States outperforms Europe in early next year based on some leading indicators that I'm watching. And if that ends up being the case, the Fed finds itself stuck in a box where, yes, maybe they'll cut a little bit, but they really can't cut rapidly because the last thing you want is inflation picking up again. We are currently just waiting to see how this plays out. And I suspect range-bound traders will continue to flood into this market, taking a lot of back-and-forth positions.
That being said, if we can break out on this 400-point range, then we have a very real possibility of a big move happening. In the short term, I still favor fading rallies that show signs of exhaustion, but I also recognize that if he suddenly sounds very dovish, the euro's going to rally and probably eventually break above 1.18. We'll just have to wait and see. We definitely have a coiling of the market, but adding more problems to the mix.
We're in the last couple of weeks of the year, and here in about 10 to 15 days, liquidity just disappears. So that's a potential problem as well. Be careful, keep your position size reasonable so that you can trade into next year and take advantage of a clean move once we see it.
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