The dollar is under pressure as markets get ready for the FOMC meeting. Traders expect a more cautious approach from the Fed, especially due to the current political climate in the U.S. In Europe, the dollar is still weak. The EUR/USD pair is close to 1.1800, currently at 1.1783, up by 0.2%. Even with challenges in the eurozone, the euro might rise, aiming for 1.2000 if it breaks through technical barriers.

Currencies Climbing

GBP/USD has reached its highest point since early July, now at 1.3620, a 0.2% increase. Attention is on June highs around 1.3770. The USD/CHF pair is also approaching a key level at 0.7900, and breaking through could happen as the dollar weakens. AUD/USD is attempting to rise, trading at 0.6670 and nearing its 200-week moving average. If it stays above this, it could gain momentum, marking its first move above since 2022. USD/JPY and USD/CAD are stable but may react to decisions from the Fed. Traders are expecting a 25 bps rate cut and possibly more cuts by year-end. The Fed’s decisions will likely influence whether the dollar stabilizes or continues to fall. With the U.S. dollar weakening before tomorrow’s Federal Reserve meeting, a major market shift is anticipated. There is strong belief in a dovish Fed, especially since recent data showed the August Consumer Price Index dropped to 2.8%, boosting chances for a rate cut. Traders should brace for increased volatility in major currency pairs. For EUR/USD, keep an eye on 1.1800. This level has proven challenging to break since late June 2025. A dovish announcement from the Fed could trigger a breakout, making call options with strike prices above 1.1800 a smart strategy for targeting 1.2000. This outlook is supported by the European Central Bank’s indication of being in no rush to lower its own rates.

Breakout Opportunities

A similar breakout may occur in GBP/USD, which is now at its highest since early July 2025. As the pair moves beyond 1.3600, traders could use call options to bet on a continued climb towards June highs around 1.3770. The likely path appears to be up if the Fed carries out the anticipated rate cut. The dollar’s pressure is also seen in USD/CHF, currently testing the crucial 0.7900 support level. A clear break below it could offer opportunities with put options, betting on further declines of the dollar. Meanwhile, AUD/USD is attempting to rise above its 200-week moving average for the first time since 2022, a technical shift that could be seized with call options. While pairs like USD/JPY and USD/CAD are consolidating, the Fed’s decision could prompt a breakout. Given the uncertainty, strategies that profit from significant moves in either direction—like buying a straddle—might be effective. This is reasonable as market volatility, reflected by the VIX index, has risen from summer lows to over 18, indicating traders are preparing for action. The main risk is a surprise hawkish stance from the Fed, which could strengthen the dollar. If the central bank hints at fewer cuts than the 67 basis points currently priced in for the rest of the year, the dollar might rebound sharply. A wise hedge would be to hold short-term put options on EUR/USD or GBP/USD to guard against this scenario. Create your live VT Markets account and start trading now.

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