The euro stabilized a bit on Tuesday after initially dumping. By stabilizing the way we have and recovering about half of the losses, it suggests that the FOMC meeting is about to have a major influence on what happens next. This makes a lot of sense considering that the market has shown itself to be very sensitive to the words of Jerome Powell. Now that we are going to get a statement and a press conference, that should help alleviate some of the questions that may still remain.
Without a doubt, the most important thing to pay attention to is whether or not Jerome Powell sounds just as hawkish as he has been as of late, or if he opened the door for a little bit more dovishness. If he does sound just as hawkish as he has, I would anticipate that the US dollar will more than likely continue to strengthen. That is not to say that has to happen, just that it is the most likely to be the outcome. On the other hand, if we see Jerome Powell sound like he is going to open the door for a little bit of dovishness, then we will more than likely see other currencies strengthen against the greenback.
Looking at this chart, the 1.1225 level underneath offers a lot of support. We will have to pay close attention to that level because if we break down below it it is very likely that we will make a run towards the 1.12 handle, and then reach down towards the 1.10 level underneath. On the other hand, if we turn around and break above the 50 day EMA, it is likely that we will go looking towards the 1.14 handle, possibly even the short-term high above there. If we can break above there, then it is likely that we would continue to go much higher, perhaps repelled by Jerome Powell himself.
Do not get me wrong, this is all about the US dollar and has almost nothing to do with the euro itself. Because of this, I will be paying attention to the reaction at the end of the day on Wednesday more than anything else as the market will continue to see a lot of noisy behavior; but hopefully, we will continue to see a bit of clarity after all of this.