EURUSD Vulnerable Ahead of FOMC

FOMC Up NextPrice action in the US Dollar has been rather muted so far this week as traders prepare for the September FOMC later today. The event is widely expected to see the Fed holding rates unchanged while reaffirming its message that further rate hikes might still be appropriate, depending on the path of inflation. A fresh uptick in inflation last month means that the Fed is unlikely to signal an end to its tightening campaign and, as such, traders are expecting a ‘hawkish hold’ from the Fed today.Focus On the DotsGiven that such an outcome is widely expected, the bigger focus will be on the update dot plot forecasts as well as the finer details of the forward guidance, to be found in the press conference following the meeting. If the dot plots see any upward revision, this should see USD trading higher near-term, particularly given the recent jump we’ve seen in pricing for November/December hikes. Alternatively, If the dots remain the same or move lower, this should see USD pulling back as traders reduce their rate hike expectations.ECB/Fed DivergenceIf we see a bullish USD outcome from today’s meeting, EURUSD is a good candidate for shorts. Given the shift in tone from the ECB, a hawkish outlook from the Fed will reinstate policy divergence between the two banks, leading EURUSD lower.Technical ViewsEURUSDThe sell off in EURUSD has seen the market breaking down below the rising trend line from YTD lows as well as the structural support at 1.0785. With momentum studies bearish, the focus is on a further push lower while we hold below the 1.0785 level with 1.0515 the next support to note.