I would expect the FOMC to be less hawkish given the negative US data surprise
over the last 1+ months. The fall in core PCE should also prevent the FED from
talking much about balance sheet shrinking in this meeting. Whenever growth
outlook starts to waver the FED has sounded dovish to infuse confidence. At the
same time the FOMC would not take out June rate hike probability totally (it
would want it to hover around 50% from current 67%). Therefore maintaining a fine
balance between infusing confidence and maintain a rate hike outlook is the
task that the FED has at hand tonight. I would expect US10Y yields to move
lower from current 2.29 levels towards 2.20 by the end of NY session.
Consequently the trade ideas for major currency pairs would be below.
GBPUSD
A down move in GBPUSD should not last long on account of
change in US rate hike outlook. Therefore any dollar strength (if the FED turns
out to be more hawkish than I expect) could give a buying opportunity in
GBPUSD.
Daily Tknsen is at 1.2861, I will put an order to buy GBPUSD
at 1.2866 for the FOMC evening with a stop at 1.2829 for a move to 1.2960.
Alternatively, if one would want to go long GBPUSD before
the FOMC expecting a less hawkish FED, then buying at 1.2920 with a stop at
1.2874 could be recommended.
EURUSD
EURUSD should trade in a range of 1.0880 and 1.1020. Both
the ends could be used to enter the pair as a less hawkish FED would drive the
price higher while ECB’s lack of confidence on inflation achieving target
should prevent price from sustaining above 1.10 levels.
USDJPY
USDJPY is in a downward channel since the beginning of 2017
and is currently near resistance levels of 112.75 (CMP 112.37).
Pre FOMC (only), one can sell USDJPY at 112.75 with stop of
113.35 for target 1.1065.
Alternatively one can stop sell USDJPY at 111.65 (post FOMC)
with stop at 112.10 for a target of 1.1065 post FOMC.
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