EUR/USD is close to the weekly highs just before the FOMC meeting. Expectations are high for more monetary stimulus.
However, there are many reasons to believe that the Federal Reserve will not announce any new policy this time. With the pair close to resistance, this could be a short opportunity.
Update: Indeed a short opportunity, as the Fed does NOT announce QE3 and EUR/USD plunges.
Why will the Fed avoid easing? In short: inflation isn’t low, housing is showing signs of recovery (including the most reason signs) and the economy is still growing according to PMIs.
And most importantly, if we take it from Bernanke, he said that QE has “diminishing returns” – long term yields are already very low – more bond buying will not push them much lower. See more in the FOMC Preview.
EUR/USD is at 1.2718 at the time of writing. The post-Greek-elections high was 1.2748. This is also the highest level in nearly one month. In case Bernanke indeed disappoints, it will be a bounce from resistance – a rather sharp bounce.
If Bernanke does deliver, we could see a breakout to higher ground. But, as it is priced in, breaking resistance will be quite tough.
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