Later today at 7:00 pm GMT, the Fed will publish its latest policy decisions.
Word around is that Powell and his team will raise their interest rates by 25 basis points to 4.75%, which is pretty high but not as hawkish as the central bank’s previous 50 and 75 bps rate hikes.
More importantly, markets believe that Gov. Powell will put on his hawkiest feathers and do his best to discourage traders into thinking that a slowdown in rate hikes means that the Fed is almost done tightening its policies.
Before the Fed’s decision though, USD traders will also deal with the ADP and ISM PMI reports that usually serve as leading indicators to this Friday’s U.S. non-farm payrolls (NFP) reports.
If Powell succeeds in preventing risk-takers from pricing in lower interest rates, or if today’s jobs reports point to the Fed having more leeway for further rate hikes, then traders could keep buying USD.EUR/USD, which already broke a trend line support on the 1-hour time frame, could trade lower from its consolidation and extend its descending channel chart pattern.
USD bulls could even take cues from the SMA crossover and drag EUR/USD to new weekly lows.
But if traders shrug off Powell’s hawkish statements, or if today’s jobs reports point to a slowdown in wages (and therefore inflation) then traders could ditch the safe-haven dollar in favor of “risker” bets like EUR.
EUR/USD could bust through its descending channel resistance and extend its January uptrend.
The pair may even trade above January highs if enough traders buy EUR ahead of European Central Bank’s (ECB) expected 50 bps interest rate hike!
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