The Federal Open Market Committee faces a communications challenge at the end of its two-day policy meeting on Wednesday and the outcome could create downside risks for EUR/USD.

As it is a quarterly meeting, the U.S. central bank will also release updated economic forecasts and the 'dot-plot', besides the usual decision, statement and press conference with Fed Chair Jerome Powell nL1N2L82OT.

The Fed's challenge will be to avoid mixed messages.
The economic forecasts and dot-plot will likely acknowledge the improving U.S. economy and the impact of the surge in fiscal spending - while the statement and press conference will try to reassure markets that policy will remain on hold for an extended period.

Unless the Fed surprises by changing the timing and make-up of its bond buying program, there is a real risk that longer-dated U.S. Treasury yields will climb and in turn push the dollar higher.

The safe-haven USD would also benefit if mixed messages ignite increased volatility in risk assets. If Powell is seen as 'too dovish', it could trigger credibility concerns and long yields might rise due to a perceived lack of vigilance over inflation.

Key EUR/USD support comes in at the 200-day moving average, which has held since May 28, 2020.
A break below the current 1.1840 reading would put the Nov 4 trend low at 1.1602 in focus.

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