Focus Shifts To FOMC

At the start of the week, positive comments from the US and China fueled positive market sentiment and put the greenback under some negative pressure. The two countries are getting closer to a deal but a lot of issues are yet to be resolved, which caps the risk-on sentiment.

Apart from trade news, investors mulling prospects of another rate cut by the Federal Reserve during the two-day meeting, which starts on Tuesday. The market has priced in about 90% for a 25 basis point rate cut, so the central bank is unlikely to disappoint. At the same time, the dollar will show resilience should the committee indicate that it is done cutting for now. In other words, the greenback could even strengthen should the FOMC signal a pause in its easing cycle.

On the whole, the argument to ease after the October meeting has weakened, as the country’s economy is broadly on rather firm footing, with household sector continues to show resilience. Moreover, the trade- and Brexit-relayed concerns have eased in recent weeks, which is also a positive development.

So should the Federal Reserve signal a pause after a rate cut in the upcoming meeting, EUR/USD could lose ground further and stay below the key moving averages. In the short term, the inability to get back above the 100-DMA around 1.1130 could lead to a break below 1.1070.

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