With the return on investors from a long Easter Holiday in Europe the EUR/USD started to price the outlook for the FOMC meeting the rate differentials between the European Central Bank and the Federal Reserve.
Investors are focused on the FOMC and the growth figures on queue which is influencing the market moves. The market on Tuesday started to take the effect with the lack of major data, especially from Europe as speculation on the Feds move and Trichet’s hawkish comments influenced trading.
The euro found the support needed after Trichet said policy makers should avert the rise in inflation expectations and reiterated his fear of “second-round effects” which is further support for the expected rate hikes to come from the ECB.
On the other end, the market downplayed any possibility for a Feds change of rhetoric, where the speculated the bank will continue with its dovish monetary policy even as the second round of QE will come to an end as scheduled in June.
The focus will be on Wednesday still that same sentiment with the FOMC decision due at 16:30 GMT. The rate and Bernanke’s press conference at 18:15 GMT will be the main highlight for the market and the volatility is likely to extend till Bernanke speaks as the rate is projected to come unchanged at its historic low range of 0.25-0.0%.
We see the chance for the euro to continue the gains shall the debt woes and downbeat sentiment avoid the market. The expectations for the feds to remain dovish is supportive enough for the euro and the risk limit for the gains is a strong downbeat rhetoric from Bernanke on the outlook for growth from rising commodity prices and temporary spike in inflation which will not affect the monetary outlook for the dollar rather than trigger risk aversion and accordingly euro losses.
Other data on the queue for Wednesday start in Europe with Industrial Orders for the euro area at 09:00 GMT for the month of February. Orders are expected with 1.8% rose from 0.1% which is to be supportive for the euro to continue strong.
From the United State and ahead of the decision Durable Goods for March are expected also with a reverse higher with 1.5% gain from 0.9% contraction at 12:30 GMT.
Still, the data will not be the main influence for the market as the focus will remain on the FOMC and the feds which will determine the general sentiment ahead of critical growth figures from the US later in the week.
Written by ForexMansion.com