Weaker than expected Australian inflation weighs on the Australian dollar, and the Euro remains well bid as suggested by EUR/USD strength and a EUR/JPY bullish breakout.

We could say that the trading week starts today since the Federal Open Market Committee (FOMC) statement is due during the North American session.

The market’s price action so far this week has been very slow, as suggested by the main currency pair: EUR/USD. The pair closed last Friday in the 1.2080 area and now trades around the same level, despite the market having been open for more than 48 hours since Monday. This tells us a lot about what drives the market and what the main event of the week is.

Low volatility levels helped the US indices — particularly the S&P 500 — reach new all-time highs this week. European indices are well bid as well, with the German index continuing to find support on every dip.

Commodities are extremely well bid, particularly lumber and corn. Food prices are through the roof, suggesting inflation is just around the corner. Finally, crude oil holds above $60 ahead of the OPEC and Joint Ministerial Monitoring Committee (JMMC) meetings that start today.

Daily Analysis

The trading day started with a big surprise from Australia. The market expected core inflation to rise and the headline inflation to remain stable at 0.9%, but the core data came out at 0.3% (on 0.5% expected) and the headline data was 0.6% (on 0.9% expected). This was a huge miss despite the Reserve Bank of Australia keeping the printing presses running.

Canadian dollar traders have a busy day ahead. The Retail Sales in Canada, Crude Oil Inventories, and OPEC-JMMC meetings all have the power to move the Canadian dollar pairs.

Finally, the all-important event of the trading week takes place in the second half of the North American session. The Fed releases its FOMC statement followed by a press conference thirty minutes later. Expect the US dollar to be all over the place during the statement and the press conference.

Markets to Watch

The S&P 500, EUR/JPY, and EUR/USD markets are in focus today.

S&P 500

The S&P 500 remains undeniably bullish above the rising weekly trendline. However, ahead of the Fed and the end of the month, traders may want to pay attention to this week’s candlestick. If the S&P 500 posts a bearish candlestick, the market will form an evening star, which is a bearish pattern with huge implications for the weeks ahead. The previous week’s doji candlestick signals uncertainty, so caution is needed ahead of the Fed.

EUR/JPY

The EUR/JPY cross broke higher yesterday, triggering some stops on its way up, and an ascending triangle formation points to even higher levels to come.

EUR/USD

The EUR/USD pair broke downwards through the rising channel at the opening of today’s London session, in a sign that investors are willing to book some profits ahead of the Fed. Should we see a hawkish dollar statement, the 1.20 level attracts.

Winners and Losers

The Japanese yen remains well offered, while the euro continues to be bullish.