The Euro should retain a firm tone ahead of the FOMC rate decision with high volatility following the announcement. The best strategy looks to buying on dips towards 127.40 against the yen and looking to hold the positions with a tight stop loss ahead of Wednesday€™s decision.
The US February industrial production declined by a further 1.4% for February. The New York manufacturing index also weakened further to a record low of -38.2 in March from -34.7 previously, contrary to expectations of a small improvement. The data will undermine hopes for any improvement in the manufacturing sector.
Attention will turn to the Federal Reserve monetary policy meeting which is set to start on Tuesday with an announcement due on Wednesday. The interest rate decision is likely to be a dead issue with the 0.00 - 0.25% Fed funds range continuing.
The main focus will be on the policy statements surrounding the buying of mortgage securities and a potential move to expanding the programme and buying long-term Treasuries
There will be increased pressure on the Fed to expand the buying to help alleviate credit conditions, butt here will also be some reluctance to move aggressively as the Fed will want to keep some policy measures in reserve.
There will be the potential for big moves in Euro/yen following the meeting. A Fed announcement of increased bond buying would underpin risk appetite and push the Euro higher against the yen. In contrast, a decision not to announce further measures would weaken confidence and push the Euro lower with the possibility of a sharp decline.