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Forex: A more dovish FOMC?

Financial markets have settled themselves but we’ve seen some abnormal moves recently with the first being the bounce in the euro following the Greek General Election results and then yesterday the US dollar reacted strangely to better than expected consumer confidence seeing a bout of profit taking. Many were blaming the poor durable goods data for the dollar’s weakness however these moves indicate that the trends of a weaker euro and stronger dollar are a little over extended so we saw EURUSD touch 1.1400 at one stage and GBPUSD recovered to 1.5200 however this morning both are a little below these levels at 1.1340 and 1.5165 respectively.

Today all eyes will be on the FOMC meeting this evening which could determine whether this dollar pull back presents a buying opportunity or whether there’s further profit taking to be had. With inflation continuing to decline and oil prices remaining anchored below $50 a barrel, expectations have increased for a dovish statement this evening. This could lead to further dollar weakness and push EURUSD back towards 1.1600.

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