As it was widely expected the Federal Open Market Committee decided to cut the size of its monthly asset-purchases to $65 billion and left the forward guidance unchanged. The Fed will be now purchasing a total $30 billion in mortgage backed securities and $35 billion in government bonds in order to keep interest rates low and stimulate growth of the world's largest economy. The move was widely anticipated, hence, market reaction was quite moderate. Moreover, it seems the Fed is unlikely to shake markets this year, as according to analysts' projections, the U.S. central bank will be trimming their monthly asset-purchases by $10 billion per month until the stimulus is withdrawn completely. The most traded currency pair was highly volatile during the last two weeks, with first soaring above 1.37 on the back of positive manufacturing report from Europe, while last week even weak Q4 growth of the U.S. economy was not able to outweigh disappointing German inflation figures. Moreover, it was not a surprise that markets were practically unchanged following Friday's EU CPI report. It is important to mention, that traders are expecting the greenback to appreciate soon, as American currency is bought in 58% of the cases across the board.
This week's highlight will be the EUR/GBP pair. From the perspective of technical analysis, the pair is likely to perform a sharp downside rally, as it is not trading in boundaries of a descending triangle anymore (4H chart). Moreover, on January 21 the pair performed a throwback already, making it even more attractive for short traders. While market sentiment is not clearly marked, vast majority (65%) of pending orders are placed to sell the pair, ready to provide additional support for pair's downside movement. From the perspective of fundamental analysis, the pair also has a great potential to dip toward a recent low at 0.8169. Data from the U.K. pillars– manufacturing, construction and services sectors can surprise markets to the upside, while on Thursday policymakers can provide some hawkish comments and adjust their forward guidance, even though they are likely to stay pat on the monetary policy. On the other hand the ECB can announce fresh stimulus, taking into account weaker-than-expected inflation data.