Evergande Dominates Overnight, FOMC Eyed

EUR/USD is little changed at $1.1725 ahead of European dealing, after holding to a sub-15 pip range overnight. The rate has followed the broader USD gyrations which centred on troubled Chinese property developer Evergrande, although the moves in the rate have been more limited when compared to much of the G10 FX space.

• Our technical analyst notes that EUR/USD is consolidating but maintains a bearish position following recent weakness. Bears now target key support in the form of the Aug 20 low ($1.1664), which represents an important bear trigger. A break would strengthen the medium-term bearish case. Initial firm resistance has been defined at the Sep 14 high ($1.1846), with the 20-DMA offering some protection ($1.1785).
• Nearby FX option expiries of note when it comes to today's 10AM NY cut are as follows: $1.1675-85 (EUR1.2bn),
• The latest monetary policy decision from the U.S. Federal Reserve headlines the broader docket on Wednesday. Today's FOMC meeting will set up a taper start in late 2021, increasingly likely in November. While details of the FOMC's taper plan may not emerge from this meeting, a taper is likely to run at a $15bn/meeting pace with optionality to adjust at each meeting, opening up the possibility of an end-2022 rate hike. Consensus expects the median Fed funds rate 'dot plot' path to remain fairly static at this meeting vs. the June projections, setting up hawkish risks.