FOMC meeting is a major test for USD

FX:EURUSD   Euro / U.S. Dollar
The dollar turned negative on Monday following a widespread rally at the end of last week. The USD demand ebbs even as the risk sentiment remains subdued as investors still prefer a cautious approach due to the linger-ing global risks.

The EURUSD pair has switched to a recovery mode and trades around the 1.1350 area. Interestingly, the euro is rising despite the latest data confirmed that the euro zone economy is slowing. In particular, the final November CPI came in at 1.9% YoY versus the flash estimate of 2.0%. On a monthly basis, the consumer price index de-clined by 0.2% versus +0.2% previously. Moreover, the core CPI came in at -0.3% from +0.1% in October.

Such a behavior in the market shows that traders are shifting focus to the upcoming FOMC meeting, and the expectations ahead of the key event of the week are driving the markets. As there are expectations that the Federal Reserve will turn more ‘dovish’ the dollar feels uncomfortable, and further profit-taking could be ex-pected in the near term even as the central bank is to deliver the forth rate hike.

Technically, the EURUSD may challenge the 1.1350 region but the upside potential is limited as long as the is-sues with Italy’s budget remain unresolved. The immediate support levels come at 1.13 and 1.1270.