With US-China trade tensions easing, improvement in US data and limited cases of Coronavirus in the US, Fed has no urgency to change its stance. Short EUR/USD?
FOMC is expected to keep rates unchanged at 1.50-1.75% without making any major changes to the statement.
US indexes rebounded on Tuesday following solid US economic data and mixed earnings as markets kept a watchful eye on developments in the China virus outbreak.
The coronavirus outbreak in China has spread globally with 6,062 reported cases, of which eight are in the US and Canada.
Fed may downplay the extent of damage done by the coronavirus outbreak until its next meeting when more data is available.
Furthermore, with the US-China phase one deal signed and upbeat US companies’ earnings, Fed may be inclined to keep its monetary policy on hold.
The FOMC press conference will be vital as questions on the coronavirus’ impact on the US economy will definitely be on the list.
Lastly, issues on liquidity will require answers from Fed as it has been providing large liquidity through purchases of Treasury bills. This can be seen as a Quantitative Easing (QE) lite and the market will want to know what Fed’s next course of action will be.
EUR/USD is currently holding at its support and if it breaks after a bullish FOMC, this pair may fall lower towards 1.0930.
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