EUR/USD weakened slightly on Tuesday in muted price action as investors awaited key data and event risks nL1N2RT0V3, with longs potentially under threat if the Fed follows the example of less accommodation established by other central banks recently.
Last Wednesday the Bank of Canada ended its bond buying program and signaled rate hikes could come in sooner than previously thought nL1N2RN1IW.
The RBA also shifted to a less accommodative stance, abandoning its yield curve control program and hinted that rate hikes could come in 2023 instead of prior projections for 2024 nL1N2RT05Q.
Investors are widely expecting nL1N2RR0GB the Fed to announce QE tapering on Wednesday and will also be looking for potential clues to when rate hikes might begin.
Should the Fed surprise investors by signaling in some way liftoff after tapering concludes -- expected in mid-2022 -- nL8N2RS1DI the U.S. interest rate complex EDM2US10YT=RR is likely to end its recent downward correction and resume its rally.
Dollar buying is likely to take hold on a less dovish Fed and rate rallies.
EUR/USD shorts should then test key 1.1490/1.1520 support.
A break of that zone would open the door to a test of the 1.1200 area.
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