The dollar was mixed in the Tuesday session, losing ground against the euro and the Loonie despite better than expected US economic reports. The February housing starts figure unexpectedly jumped to 583k units, up by 22.2% from a month earlier at 466k units. Building permits also beat consensus estimates, improving to 547k units defying calls for a decline to 500k units from 531k units in the previous month. Producer prices for February were mixed with the headline prices at 0.1%, down from the previous month at 0.8% while declining by 1.3% on an annualized basis versus a 1.0% drop previously.

The key highlight for Wednesday will be the FOMC monetary policy decision, due out around 2:15 pm. While the Fed's room for maneuver is limited at this point, the accompanying policy statement will likely reiterate the FOMC's support for providing the necessary means to prop up the economy. Additional reports due out tomorrow include February CPI and the current account balance.

Euro edges Higher

The euro crept higher against the majors, holding onto its gains versus the greenback, yen and sterling. Economic data from the Eurozone saw Germany's March ZEW sentiment survey deteriorate by less than anticipated, with the current conditions component worsening by less than expected to -89.4 from -86.2 in February. The March ZEW economic sentiment unexpectedly improved to -3.5, beating calls for further decline to -7.4 from -5.8.

EURUSD continues to hold steady just above the 1.30-level and will encounter interim resistance at 1.3030, followed by 1.3060 and 1.31. Additional ceilings will emerge at 1.3140, backed by 1.3170 and 1.32. On the downside, support begins at 1.2980, followed by 1.2930 and 1.29. Subsequent floors will emerge at 1.2870, backed by 1.2840 and 1.28.

Yen Drifts Lower ahead of BoJ

The yen continued to slip lower against the euro and dollar ahead of the Bank of Japan monetary policy decision due out in the early Wednesday session. The BoJ is limited in terms of interest rate mobility but there has been speculation that the Bank may initiate a program to provide struggling banks with subordinated loans. BoJ Governor Shirakawa described the possible move as an extraordinary measure and will likely be implemented as soon as possible.