TOM FOMC will present updated macroeconomic forecasts for the markets tonight and is expected to leave the target rate in the range of 2.25% -2.50% unchanged. The Fed has no reason to change the tone of the accompanying comment for a more hawkish one. Moreover, there are well-founded concerns in which the Fed plans to have a one rate increase this year.
At the end of the meeting, the dollar index runs the risk of going down, but volatility is unlikely to increase significantly, unless, of course, the Fed finds some ways to surprise the players.
EURUSD
Investor confidence in the German economy rose to -3.6p in March against -13.4p a month earlier. The similar index for the eurozone as a whole rose from -16.6p to -2.5p. The dynamics are positive, reflecting serious changes in the prospects for the eurozone.
Investors hope that the failure of 2018 will be surpassed, since a number of external factors for the eurozone provide grounds for such optimism. The probable postponement of Brexit reduces the risks. The announcement of the imminent completion of the US-China trade negotiations gives hope that the "world trade war" will not take place.
At the same time, optimism about the prospects for the eurozone remains cautious. The ECB recently lowered its forecast for economic growth. On Tuesday, advisers to the German government lowered their GDP forecast for 2019, from 1.6% to 0.8%, while noting that risks to the economy remain high. Nevertheless, the threat of recession, quite real a couple of months ago, is already over. This factor will contribute to the growth in demand for the euro amid uncertainty in the UK, the threat of China's slowdown and weak US tax reform results.
EURUSD reached the upper boundary of the downward channel, which was formed in the first months of this year. And with a high probability, today, there will be an attempt to overcome this border. The resistance zone is 1.1360 / 70, it is expected that after the announcement of the FOMC meeting results, the euro will resume growth and be able to gain a foothold with the intention to test the previous maximum of 1.1420 for stability.
GBPUSD
The unemployment rate in the UK for 3 months to January inclusively fell to 3.9% , which is the absolute minimum for 44 years. The result was unexpected for experts, while the number of employees has increased by 222 thousand, which serves as the maximum since 2015, and a record high employment rate of 76.1% was also noted.
Also during this period, the average wage rose above the forecasts. The result is 3.4% higher than the expected 3.2%.
A noticeable improvement in the labor market has a simple explanation - the influx of labor migrants into the country has declined, fearing toughening labor legislation due to Brexit, despite the fact that the prepared agreement preserves the principles of labor migration for EU citizens. Reducing the amount of cheaper labor than UK citizens, labor objectively contributes to the growth of average wages and record levels of unemployment.
There is no doubt that the Bank of England will not react in any way to improve the employment situation. This will leave the monetary policy unchanged at the meeting on Thursday. The issue with Brexit is still on the agenda. There is no clarification on its decision, which means that we should not expect a resumption of investment inflows, and under these conditions, the Bank of England cannot plan any measures to tighten monetary policy.
On Thursday, Theresa May will ask for a postponement at the EU summit, since there are simply no other scenarios left after the speaker of the House of Commons of Berkou blocked an attempt to bring the agreement to a new vote. According to rumors, London will ask for a delay of 9 to 12 months, which means an extension of the period of uncertainty, thus ultimately will not allow the pound to resume growth.
The likelihood of increased volatility on the basis of the environment remains high, but the chances of the pound to consolidate above the recent high of 1.3379 are very little. More likely, trade in the range, support 1.3180. The pound will wait for the outcome of the EU summit.
The material has been provided by InstaForex Company - www.instaforex.com