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The EUR/USD finished the day sharply higher, closing up 0.55% at 1.3166. Intra-day the pair traded as high as 1.3186 but was once again unable to take out the 1.3200 level. All eyes will be on the upcoming US session, with both Construction Spending and ISM Manufacturing PMI due out at 14:00 GMT. Following this data, we will get the Federal Reserve Monetary Policy statement at 18:00GMT.

However, with all the hype surrounding the upcoming economic data due out of the US, some analysts are saying not to look too much into the release and the effect on the US Dollar might be minimal.

According to Kathy Lien of BK Asset Management, "Given the recent disappointments in economic data, it will be very difficult for the hawks inside the Fed to justify hardening their call for a rate cut. In contrast, the doves will sing louder about the need for maintain the current level of stimulus. However none of these discussions are likely to appear in the FOMC statement. Instead, we expect the statement to remain mostly unchanged because the conclusions of the Beige Book suggest that the weakness in March did not extend into April."

She went on to add, "Conflicting signals in U.S. data should only widen the divergence in views within the central bank, making it difficult for the Fed to make any changes in monetary policy. In other words, tomorrow's FOMC rate decision could be a nonevent for the U.S. dollar. We are eager to see if the central bank changes its assessment of the labor market from "signs of improvement" to mixed and whether they acknowledge the recent softening in economic data. If they do, it could lead to a small downtick in the U.S. dollar."

Due to the recent weakness in commodity prices, some analysts are saying the decreasing inflation pressures around the globe are helping to contribute to the recent weakness of the US Dollar. In a sense, lower commodity prices have taken the pressure off central banks (specifically the Fed) to ease up on monthly QE purchases.

According to analysts at Bank of Tokyo-Mitsubishi UFJ, "The ongoing decline in inflation pressures in the advanced economies which are struggling with subdued growth was clearly evident yesterday with the annual rate of the US PCE deflator declining to just 1.0% in March and German EU harmonised CPI rate declining sharply to just 1.1% in April."

They went on to add, "The ongoing moderation in inflation pressures then serves to increase expectations that central banks will ease monetary policy further given the heightened risk that inflation will undershoot their targets. The loss of cyclical momentum for the US economy heading into Q2 and low inflation pressures are resulting in the US dollar giving back some of its gains recorded in Q1 as investors push back the timing of when the Fed is likely to begin tapering QE3 monthly purchases."

So after all the fundamental reasons for the recent US Dollar weakness, what are the short term and long term charts of the EUR/USD saying ahead of the FOMC meeting?

According to Val Bednarik of FXStreet.com, "With not much data expected for current Asian session, and Europe closed on holidays, majors will likely hold in ranges, waiting for FED's economic policy decision tomorrow US afternoon. FOMC is expected to repeat the usual dovish stance and refrain from comment on a possible end of QE, which will only add selling pressure to the greenback."

She went on to add, "In the 4 hours chart technical readings present a strong upward momentum, reflecting latest run higher and the fact that price stands near the daily high. New gains beyond 1.3200 is what it takes to confirm an upward continuation in the pair, with 1.3250/60 area then at sight."

Looking at the longer-term time frames, it should be noted the EUR/USD did manage to form a bullish engulfing pattern on the monthly chart for April. Although these patterns do have more meaning when they occur after a defined downtrend (EUR/USD has been range bound for quite awhile on monthly chart), it's still worth pointing out and could have bullish implications going into May.

Source: FOMC Meeting - A Major Catalyst Or Non-Event?