EUR/USD is likely to set new lows after the Fed meeting.
Its profit taking bounce above the 200-DSMA has been erased and the pair is now down on the day.
Eurozone economic data provided no relief, with upward revisions to April Markit PMI and Q4 GDP unable to buoy EUR/USD above the 200-DSMA.
Persistent dollar short covering and wider DE-U.S.
yield spreads, which keep the cost of carry to be short the greenback high, have limited EUR/USD bounces. The Fed is unlikely to alter this. An unchanged statement might lead to a small dollar pullback.
However, dollar shorts will buy dips as yield spreads will still favor the greenback as long as the Fed and ECB remain on diverging policy paths.
If the the Fed leans more hawkish, the dollar bid should intensify as the market is likely to price in a more aggressive U.S.
Spreads will likely hit new wides, increasing the cost of dollar shorts.
EUR/USD's slide is then likely to test supports near 1.1900 and 1.1800.
chart: Click here