Insights 
VT 
The dollar faces pressure as markets prepare for the FOMC meeting decision. Traders anticipate a dovish stance from the Fed, further pressured by political dynamics in the United States.
In European trading, the dollar remains weak, with EUR/USD challenging the 1.1800 mark, currently at 1.1783, up 0.2%. Despite eurozone challenges, the euro is poised for potential gains, eyeing a rise towards 1.2000 if a technical break occurs.
Currencies Climbing
GBP/USD climbs to its highest since early July, up 0.2%, at 1.3620, with a focus on June highs around 1.3770. Similarly, USD/CHF nears a significant level at 0.7900, with potential for a breakthrough as the dollar weakens.
AUD/USD attempts a rise, trading at 0.6670, approaching its 200-week moving average. A sustained move above could shift momentum, marking its first such move since 2022.
USD/JPY and USD/CAD exhibit consolidation but may react to the Fed’s decisions. Traders have priced in a 25 bps rate cut with additional rate cuts expected by year-end. The Fed’s stance could determine whether the dollar stabilises or continues its downward trajectory.
With the US dollar weakening ahead of the Federal Reserve’s meeting tomorrow, we are positioned for a significant market move. The conviction for a dovish Fed is strong, especially after recent government data showed the August Consumer Price Index cooled to 2.8%, reinforcing bets for a rate cut. Traders should prepare for an increase in volatility across major currency pairs.
For EUR/USD, the critical level to watch is 1.1800, a ceiling it has struggled to break since late June 2025. A dovish Fed announcement could provide the catalyst for a breakout, making call options with strike prices just above 1.1800 a viable strategy to target a move toward 1.2000. This view is strengthened by the European Central Bank signaling it is in no rush to cut its own rates.
Breakout Opportunities
We see a similar breakout happening in GBP/USD, which is now trading at its highest point since early July 2025. As the pair moves above 1.3600, traders could use call options to position for a continued climb towards the June highs near 1.3770. The path of least resistance appears to be higher if the Fed delivers the expected rate cut.
The pressure on the dollar is also evident in USD/CHF, which is testing the key 0.7900 support level. A decisive break below this mark could be played using put options, betting on further dollar decline. At the same time, AUD/USD is fighting to get above its 200-week moving average for the first time since 2022, a technical shift that could be captured with call options.
While some pairs like USD/JPY and USD/CAD have been consolidating, the Fed’s decision has the potential to shake them out of these tight ranges. Given the uncertainty, strategies that profit from a large move in either direction, such as buying a straddle, could be effective. This approach is sensible as market volatility, measured by the VIX index, has already climbed from its summer lows to over 18, suggesting traders are bracing for impact.
The primary risk remains a hawkish surprise from the Fed, which would bail out the dollar. If the central bank signals fewer cuts than the 67 basis points currently priced in for the rest of the year, the dollar could rally hard. A prudent hedge would be to hold some short-term put options on EUR/USD or GBP/USD to protect against this opposite scenario.
