EUR/USD

In the process of sideway consolidation, the pair rose above the level of 1.3380/90 and is now trading at 1.3400/1.3390, on trying to fix above the broken resistance level. This scenario was mentioned in the past analysis as indicating a bullish sentiment, and a possible rise to 1.3450/40 and then to 1.3540/50. However, the indicators suggest not to jump to conclusions, especially considering continuing divergence on the MACD, which warns of a possible pullback.

Despite my expectations, the USD/JPY failed to remain above the level of 100 yen for the U.S. dollar. On seeing extreme volatility in the Japanese government bond market, investors have questioned the ability of Japanese authorities to control the situation and achieve the declared targets. As a result, we see significant reduction in the Japanese stock market and the yen’s rise.

USD

The dollar traded mixed on Tuesday after expectations fell that the Fed would cut QE, leading to a rebound in risk appetite. The greenback ended the day at 1.3392 to the euro and 95.32 to the yen. The most significant event on the calendar today is the FOMC rate meeting, about which there has been considerable speculation in relation to whether a tapering of asset purchases will be announced or not.

Tomorrow is FOMC day and as traders wait to see what happens volatility has fallen to a snail’s pace.

The big question on everyone’s mind is whether the Fed will taper asset purchases or not and the consensus seems to have drifted towards the “NO” camp as the minutes tick by before the big event.

Overall tapering is not expected as unemployment remains stubbornly high. Non-Farm Payroll figures for May showed an improvement but not sufficiently to really instil rock solid confidence.

This scenario is typical when the market is expecting major events: the U.S. Federal Reserve Open Market Committee (FOMC) meeting on the U.S. monetary policy. The market is anticipating for these decisions, as the meeting will clarify whether the U.S. Fed will tighten its policy in the near future. The market has long been discussing a possible reduction of the Fed’s bond-buying program and investors hope to receive an answer at today’s meeting. In addition, the G8 summit (scheduled for yesterday) calls for caution.

EUR/USD
Just as expected, the pair continues its sideway consolidation and now the price is trading at around 1.3340/50. The indicators remain unchanged and support the bearish sentiment, yet the sentiment seems neutral, so the pair continues to move in the range. The prospects remain the same: should the pair cross the level of 1.3310/20, this will open the way to the key support at 1.3270/60 and increase the risks of falling to 1.3170/60, and then to1.3050/60.

USD

The dollar rose on Monday after strong data and commentary pointed to an increased likelihood that  the Fed might reduce the level of their asset purchases. The greenback ended the day at 1.3365 to the euro and 94.48 to the yen. Today’s data includes the CPI which is expected to increase by 1.4% year-on-year up from 1.1% previously, and a failure to rise could weaken the dollar.

In the first half of June, the U.S. stock market reflected negative sentiment, amid the crash in the Japanese stock market and possible reduction of QE3. The latter fact has even caused negative reaction to positive news last week: stock prices fell after strong data, as investors feared that positive news would be another argument for the Fed in favor of reducing the size of quantitative easing program.

Throughout the trading session, the dollar was falling against all majors and finished the weekly trading with losses against the euro and the yen for the fourth consecutive week. Against the pound, the U.S. currency sank for the third consecutive week. The market continues to discuss the probability of the Fed’s QE tapering: the analysts expect that the U.S. Central Bank will not toughen its policy in the near future, which is the main reason for selling the U.S. currency. Against the yen, the pressure on the greenback was provided by the idea that the BoJ did everything possible and left its monetary policy unchanged at the last meeting.

EUR/USD

There are no significant changes on this pair: the price continues to oscillate in a narrow sideway range between 1.3380-1.3310/20. The pair is now trading at 1.3340/20. The indicators continue to show increasing bearish sentiment. In this situation, the earlier forecast remains unchanged: crossing the level of 1.3310/20 will open the way to the key support at 1.3270/60 and increase the risks of falling to 1.3170/60, and further to 1.3050/60.