The volatility is evident on FX markets on Tuesday as investors position themselves for the Federal Reserve's decision. The FOMC start their two-day meeting today with expectations the Feds will take the decision to start to taper stimulus. Clearly investors are worries with short-covering seen across the board, especially on gold as investors fear another Fed surprise tomorrow with the decision to delay the gradual exit of stimulus. The dollar index is trading with high volatility around 80.00 areas slightly below opening levels at 80.11. We need to see stability above 80.-80.30 areas to confirm the extension of gains for the dollar to see a test at another significant resistance area between 80.40-60 which also might restrict the gains towards October highs set around 81.50 areas. Over longer-term outlook a breakout with stability above this level will clear the way for more gains toward the July tops set around 84.70 areas into the kick-start of 2014 and if the Fed indeed starts to taper their monthly bond purchases with at least 5 billion in MBS purchases as we least expect, then we will find the upside momentum needed for the dollar to extend gains. The dollar is volatility against majors amid the worries over the Fed meeting outcome and data from Europe also added to choppy trading. The EURUSD attempted to hold higher especially after Germany confidence surged and the euro area ZEW expectations survey for businesses rallied to 68.3 confirming positive signs ahead for the euro area economy despite lingering disinflation worries. We saw another attempt higher for the euro in European trading setting the high at 1.3782 areas. Our critical barrier remains at 1.3830-35 areas and protected by 1.3800 still however consolidating over four-hour basis above 1.3775 areas might support the pair test 1.3800 areas again, but we prefer to see stability below 1.3755 to support the downside bias targeting 1.3700 areas. As for sterling, the pound surrendered gains after inflation dropped unexpectedly in the United Kingdom . The GBPUSD attempted higher to set the high of 1.6336 but trades are mostly still sideways for the pair and to prefer the extension of the downside wave seen for the past hours we prefer stability below 1.6310-1.6280 to open way toward 1.6155 areas. Aussie was also one of the movers today; AUDUSD lost more ground after the RBA minutes showed the central bank maintained the option of more policy loosening. The pair is still holding however despite the downside pressure on Aussie especially after the government's budget deficit widened, which is considered credit rating negative. The pair is holding with anticipation to Fed policy, and we expect that a steady Fed decision tomorrow on stimulus will have one of the biggest impacts on Aussie by sharply pressuring the pair lower. AUDUSD is holding below 0.9000 which is likely to keep the bearish pressure on Aussie and extend the downside move toward 0.8890. We expect to see choppier trading in the US Session as traders bet on the outcome of the FOMC meeting tomorrow. We can see volatility evident on Dow and SPX futures especially after the gains yesterday as seemingly traders are less hawkish than analysts and trimmed their shorts to position ahead of the FOMC as they fear a steady surprise from the Fed tomorrow as Bernanke chairs his last policy meeting.
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