G10 pairs trade flat waiting for FOMC

The Fed will release its latest policy statement, and economic projections on Wednesday after the Bank of Japan kept its monetary policy steady. In the news conference that follows the reports, Jerome Powell will discuss the outcome and whether the Fed will begin tapering in November or December.

Since the Fed's plan to taper is largely priced in, investors are likely to pay close attention to the central bank's economic and interest rate projections.

As for the timing of the first rate hike, the dots may offer various opinions while the SEP (summary of economic projections) will likely focus on still solid growth and elevated inflation. Powell, however, has repeatedly stated that the eventual start of the tapering has nothing to do with the debate over interest rates.

It has been difficult for the Federal Reserve to react to several contradictory developments since late July, including signs of a slowdown in the service sector, an increase in Delta case numbers, and weak job growth in August, all coupled with still high inflation.

We expect the Fed to hedge on when it might start tightening and tie it to further job growth since it wants to see substantial progress in the labour market before reducing its bond purchases.

G10 trade flat ahead of Fed updates

In general, the G10 currencies are trading flat as investors wait to see whether higher-than-expected inflation or the resurgence of the Coronavirus pandemic is weighing more heavily on the economic outlook.

Euro on the four-hour chart remains rangebound, trading between 1.17138 and 1.17475, with long-run downside momentum below its WMAs. From a short-term perspective, traders are expected to halt the downward movement with a bullish correction to 1.17475.

Looking at GBPUSD on the daily chart, the pair trades in the triangle continuation pattern, attempting a bear flag breakdown with a sustained move below the support level at 1.3640.

From Asian session

Earlier in the session, the BOJ held the short-term interest rate at -0.1% and the 10-year bond yields at around 0%, in consideration of the negative effects of the pandemic, which forced several regions into a state of emergency in recent weeks.

Furthermore, weak inflation has strengthened expectations that the bank will keep its massive stimulus in place, even as its major counterparts cut off their crisis-mode stimulus support.

At the Reserve Bank of Australia's September meeting on Wednesday, the Board discussed delaying a planned A$1 billion ($727 million) tapering its bond-buying programme to A$4 billion a week.

Events of today

Later on Wednesday at 17:00 EEST, existing-home sales data will be released, which is expected to show 5.89 M houses sold in August.

The EIA report on crude oil inventories is also closely watched by traders.

Last week, the American Petroleum Institute reported that crude stocks fell by just over 6 million barrels, a much steeper drop than predicted.

If the Energy Information Administration report confirms the figures later on Wednesday, it would be the seventh consecutive weekly decline.

The FOMC statement will come out at 21:00, and Chair Powell will deliver a speech half an hour later at 21:30.