Forex markets are waiting on Fed statement and new of U.S.-China trade talks, notes Bill Baruch, President of Blue Line Futures.

Euro (March)

Session close: Settled at 1.1475, down 1 tick

Fundamentals: The euro has held ground at the top end of its recovery from last week’s new low on the March contract. It did so through Jan. 29 despite weakness in the British pound due to the Brexit vote. However, the U.S. dollar slipping has been keeping the euro buoyed. Case Shiller Housing data and U.S Consumer Confidence both missed with Confidence coming in at the lowest level since July 2017.

Today, is arguably the most crucial and pivotal day of the week. It starts off early headlined by French GDP at 12:30 am CST, German Consumer Climate at 1:00 am CST and French Consumer Spending at 1:45 am CST surrounded by other regional releases. Eurozone Consumer and Business Climate data will be closely watched at 4:00 am CST. German CPI is due at 7:00 am CST. Because of the U.S government shutdown, U.S fourth quarter GDP has been postponed.

Trade talks between the U.S and China are expected to begin, and this will drive headline risk-sentiment. The highlight of the session is the Federal Reserve’s policy statement at 1:00 pm CST and Fed Chair Jerome Powell’s press conference. There are heightened expectations that the Fed will discuss ending their balance sheet unwind in the policy statement or Chair Powell’s presser that follows. Given the recovery in risk sentiment from the depths of December.

Yen (March)

Session close: Settled at .91855, up 5.5 ticks

Fundamentals: The yen held ground today as the U.S dollar stayed at the bottom end of its recent range and safe-haven assets traded strongly. Between weak global growth data, uncertainty on the international trade front and Brexit, we find value in the yen on this pull back from its over-extended spike high on Jan. 3. Retail sales data is due from Japan at 5:50 pm CST. In the euro section we noted the probability that the dollar gains ground after tomorrow’s Fed meeting. While this would typically put pressure on the yen and it likely will, we expect such a rhetoric to put pressure on equity markets and thus encourage safe-haven buying in the yen to offset the dollar strength.