FOMC Preview: focus on the statement

And once again, it is time for the FOMC to decide the economic path for the world's largest economy. After the US Central Bank finally announced the first lift-off last December, it is quite unlikely that the Federal Reserve will make a relevant announcement this time. Even more unlikely if we take into account that there is no press conference scheduled for this particular meeting. That means that the statement will be closely watched, and any change in the wording can affect the greenback, for good or for bad. 

Given that Chinese economic slowdown is deepening rather than reversing, and with oil struggling around $30.00 a barrel, it seems that the balance will incline towards the "bad" side. Several times over the 2015 meetings, Janet Yellen emphasized a slow pace for rate increases, and with the afore mentioned background, the pace will likely be even slower than the optimistic 3-4 hikes a year initially expected. 

Adding to the gloom global outlook, US data has been somehow softer during the last months, and the dollar remains strong, something that will keep the pressure over manufacturing and consumption figures.

Watch: Trade Federal Reserve interest rate decision with FXStreet

Overall that means that a dovish stance will hardly be a surprise, although the seriousness of FED's concerns will determinate whether the dollar may fall or not. Should the statement include a clear expression over the global and economic developments affecting local activity and inflation, as they did in September, the greenback can lose value against its major rivals. Nevertheless, and with the ECB and the BOJ expecting to increase their stimulus over the upcoming meetings, the rally in those currencies will be limited. 

If the FED, however, avoids mentions to external factors, but repeats the "slow pace" and "data dependant" wording, the statement won't be considered too dovish, and therefore the greenback may grind higher. 

Anyway, unless an unlikely shocking announcement, the reaction across the forex board is expected to be short-lived, and the market will likely resume its risk-related trading afterwards.  

EUR/USD technical outlook

Mario Draghi wants a cheaper EUR, and he made it clear when he suggested the possibility of additional stimulus next March. His words however, where not able to take the EUR/USD pair outside its recent range, that continues to trade within 1.0800/1.1000, albeit the bearish potential has increased after the latest ECB meeting. 

From a technical point of view, the daily chart shows that the price is struggling to recover above the 38.2% retracement of the December rally around 1.0845 ever since breaking below it. The price is also being capped by a flat 20 DMA, while the 100 and 200 DMAs gain bearish slopes above the shorter, and the technical indicators head south within bearish territory, all of which supports a breakout towards the downside.

The key support for this Wednesday is the 1.0770/1.0800 region, where buyers have surged for most of January, the post-ECB low and the 50% retracement of  the same rally. Below this region, the pair has scope to extend its decline down to 1.0715, the 61.8% retracement of the same rally and this month low.

The upside is less clear, given that an immediate short term resistance stands at 1.0880, with the next at 1.0925, another Fibonacci level. Above this last, the pair can approach 1.1000, although strong selling interest around this last will likely prevent the pair from appreciating further. It will take a rally beyond 1.1060, December monthly high, for the pair to present a more constructive scenario, and aim towards 1.1120, a long term strong static resistance level.