The euro fell hard again yesterday, as it had the day before. There was a small corrective bounce against the dollar near midday, but pressure on the euro, the pound, and other risk assets soon returned. The key catalyst was strong US data.

The Conference Board consumer confidence index for October jumped to 91.7 versus an 81.2 forecast and 84.2 in September—far stronger than economists expected—which triggered dollar buying. New home sales also surprised to the upside: annualized new single family sales were 676k in September versus a 660k forecast, another upside surprise. Taken together, a resilient consumer and firmer housing leave the Fed with fewer reasons to wait, let alone to ease.

Now to the economic calendar. Since we are talking about policy, the main event today is the Fed decision. There is almost no European data in the morning, so the focus will be on the FOMC. The market expects the Fed to hold the policy rate at 4.00% in October; recall the rate was raised to that level in September after a pause of more than six months. The last cut to 3.75% came in December of last year, and then the Fed held rates steady until the September increase.

Middle East tensions, high energy prices—a sector that adds significant price pressure—and a reasonably healthy US economy combine to keep inflation elevated. That will force the Fed to tighten not today (market odds of an October hike are only about 10%) but likely in December, and traders are already pricing a 25-bp rise. Much will depend on Fed chair Kevin Warsh's comments today, but given his stance, expect little clarity. He has repeatedly said he will not give rate guidance and will act meeting by meeting, so I do not expect any bold statements. Hints that the Fed expects the economy to remain resilient, that the labor market is healthy, and that inflation still needs addressing would be the only signals that the Fed is planning further hikes next year—and such hints would likely push the dollar higher and pressure the euro, the pound, and other risk assets.

From European releases today, we have only the German forward consumer climate index for November, forecasted at -30.1 versus -30.6 previously. Later in the day the UK will publish its annual autumn budget. That budget has been a drag on sterling for some time, raising many questions, especially on spending. Pay attention—if the budget passes smoothly, the pound could get some support ahead of the Fed decision and strengthen versus the dollar.

EUR/USD: For longs, I highlight support at 1.1115. A false break there would be a buying opportunity aiming at 1.1136; if no buyers step in at 1.1115 and the Fed adopts a hawkish stance, we could see 1.1082—I expect active buying there leading to a 15–20 pip bounce. Longs from 1.1036 can be considered for a 25–30 pip move. On the upside, sell setups for any corrective rally include a false break at 1.1136, a false break at 1.1155, and selling a bounce from 1.1176 for 15–20 pips if Warsh unexpectedly adopts a dovish tone.

GBP/USD: pressure persists, but the budget will be decisive, so blindly watching 1.3299 is risky. You can look to sell on a false break toward 1.3267, where I expect larger buyers to show on a failed break and push the pair back to 1.3299. If buyers do not appear at 1.3267, the next stops are 1.3233 and 1.3209, from which I would consider buy-the-dip trades for roughly 25 pips.

If the pound moves above 1.3299 and the UK budget passes smoothly, a sustained break above that band could drive the pound to 1.3330 and 1.3361 ahead of the Fed meeting, where I would sell rallies for 25–30 pips; shorts from 1.3330 or 1.3299 are valid only on failed breaks. If the Fed speaks dovishly, the pound could rally to 1.3390 or 1.3416, and I would sell bounces at those levels for 15–20 pips.

I lean toward the view that dollar pressure on the euro and pound will persist into the Fed decision, since yesterday's data strengthened the dollar's case. Without a clear dovish signal from Warsh, the market will likely return to dollar buying. The pound might get a respite only if the UK budget passes smoothly.