EUR/USD: All eyes on Fed as interest rates gap can be a game changer

The single European currency is holding just above 1,1100 level in a narrow trading range as all eyes are on today's Fed meeting where after a long time bets are divided on how much to cut key interest rates.

The probability of a 50 basis points reduction which was not the baseline scenario a week earlier has now well exceeded 50%.

It's one of the few times in recent Fed meetings that the bets are relatively equal,  but have changed significantly in a short period of time as the possibility of a 50 basis point cut in key interest rates from the 20 - 30% level where it was a week ago has already climbed to 60 % on decision's day.

Although concern arising from the recent contraction of the US labor sector remains on the table, the recent data from US did not surprise negatively and in my view cannot justify a significant change in bets and although the probability has climbed well above 50% I remain in my assessment that ultimately the decision from the Fed will be a reduction of 25 basis points.

Even yesterday's US Retail Sales announcement was close to estimates with a mildly positive tone, which reinforces my thinking that a 50 basis point cut may be an extremely aggressive move by the Fed that doesn't is still necessary.

Today's stormy agenda is complemented by data on inflation in the eurozone and data on Housing Starts in US , which however certainly remain in the shadow ahead of Fed's meeting.

With no major surprises the exchange rate is expected to remain in a narrow trading range near to 1,11 level for the next hours as investors are most likely will avoid taking big bets ahead of crucial Fed meeting later in the afternoon .

I remain on hold but keeping in my mind to buy the US currency near the 1,12 level or maybe a little higher especially in the scenario of a sharp peak in a speculative climate before the Fed with the final decision being a reduction of 25 basis points.