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As currency traders get set for the FOMC meeting announcement at 2:15 EST Wednesday afternoon the only question on everyone’s mind is will the Fed cut 25bp or 50bp this time?

The futures markets are assigning an 86% probability of a 50bp cut however a large majority are betting that the Feds will only cut by a measly 25bp. If the 50bp cut does happen, prepare for major downward pressure being forced on the U.S. Dollar due to the decline in interest rate differentials which may trigger the rise of the EUR/USD to the pivotal 1.500 levels. Furthermore if the latter were to occur with a 25bp cut, short term volatility in the equity market would escalate dramatically yet such actions would allow US policy makers more flexibility to lower rates in the future.

On the trading front, not much is going on and many pairs are off their Average Daily Ranges considerably due to pending announcements in the U.S. which will then set the tone for future trends to occur. Given that I just watched Rambo, I feel pumped for a trade as it has been a while.

As per my last post, EUR/GBP is still ranging within its downward flag formation and any break above the 0.7450 would signal at outbreak with the 0.7400 region providing a great area for support if it were to occur. Here is a quick graph of the triangle formation on the 4 hr time frame:

Another potential setup may lie in the GBP-NZD Daily time frame and given the relative strength of the New Zealand Dollar, another down swing may be inevitably be triggered when the 2.5450 region has been breached.

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