Majors in tight range before Fed decision

Both EUR/USD and USD/CHF have been trapped in a 30-pip range today (at the time of writing around 1100 GMT), and their movements prior FOMC rate decision later on (1815 GMT) have been vastly different from pairs that include the Japanese yen. The yen has continued its rally, presumably from covering of yen shorts still (recall that I’ve mentioned about the record high yen shorts in the futures market). EUR/JPY, USD/JPY, NZD/JPY all went downhill from yen’s strength. Note that technicals in…

USD/JPY and NZD/JPY are hinting of a bearish divergence based on stochastics, possibly signalling a potential trend reversal soon. But right now, let’s not be too hasty, for the picture still shows a short-term retracement in these pairs, rather than reversing trend.

EUR/USD faces resistance around 1.2700-1.2730, then 1.2755, then 1.2800. Nearest support lies around the 1.2630-1.2600 area, then around 1.2560. Next move of the majors will depend on the Fed’s policy statement later rather than on the result of the rate decision as the interest rate is highly tipped to stay unchanged at 5.25%.

Will the Fed abandon its bias for further tightening due to recent slide in the US housing market and continued decline in energy prices? (Oil currently stands at $60.90 at the time of writing). If so, that would be bad for the USD. But given Bernanke’s recent efforts in trying to regain his credibility over miscommunication issues, the Fed should be sticking to its anti-inflation agenda, and continue to be data-dependent.

Right now, USD’s apparent resilience, despite the recent negative economic data, looks quite vulnerable. USD/CHF’s next support lies around 1.2440, and resistance around 1.2620.

Over to the UK, today we got the latest Bank of England minutes which showed that while the Monetary Policy Committee voted 8-0 to keep rates unchanged at its last policy meeting, its members are still worried about more inflationary pressures emerging in the next few months. On the charts, GBP/USD looks coiled up in an equilateral triangle, with nearest support around 1.8770 and nearest resistance around 1.8900

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