EUR/USD inter-markets: consolidative ahead of FOMC

EUR/USD is trading on a tight consolidative theme around 1.1270 today, coming down from Tuesday’s new 2-month highs in the 1.1320 area after comments by NY Fed W.Dudley pumped some fresh oxygen to the buck.

Yields in US money markets are trading on a mixed tone for the time being, reflecting the current dullness pre-FOMC minutes and the lack of a clear bias in the broader market sentiment.

Volatility measured by VIX has bounced to daily highs, helping the case of a bid tone around the greenback, while Fed Funds futures prices keep the lower end of the range as markets remain cautious ahead of the FOMC minutes. Following comments by Dudley on Tuesday, CME Group’s FedWatch tool is now seeing the probability of a rate hike in September at 15%, while it climbed to just above 45% for the month of December.

While market consensus expects the Committee to strike a somewhat dovish message today, USD could well be further supported in case members leave the door open for a rate hike in December, prompting EUR/USD to retrace further ground. In that case, a breach of the 1.1260/40 area – where are located the 2014-2016 trendline, the retracement of the May-June drop and early August tops – could pave the way for another visit of July peaks in the 1.1180/60 band.