A sense of calm returned to financial markets on Wednesday as investors prepared for the highly anticipated Federal Reserve interest rate decision this evening.

Investors remain hopeful that the Fed could adopt a more cautious approach toward interest rates following the market chaos sparked by a collapse in Credit Suisse and three large U.S. banks. Although the recent market turmoil concerning Silicon Valley Bank and contagion fears have left investors on edge, U.S. inflation still remains at uncomfortable levels. Markets expect the Fed to raise interest rates by 25 basis points in March, but there is still widespread uncertainty over what to expect in Q2 and beyond.

As discussed earlier in the week, if the Federal Reserve decides to leave interest rates unchanged – this could signal the end of the rat hike cycle. Such a move could deal a heavy blow to the dollar which has already weakened against almost every G10 currency this week. Although markets widely expect the Fed to move ahead with a 25bp hike, the dollar could end up weakening if this decision is served in a dovish fashion.

Taking a look at the technical picture, the Dollar Index (DXY) remains under pressure. The recent closer below 103.00 could signal further downside with 102.30 and 102.00 key levels of interest. If prices can push back above 103.00, then bulls may target 104.00.

EURUSD kisses 1.0800

The EURUSD remains firmly bullish on the daily charts with prices touching the 1.0800 resistance. Bulls continue to draw strength from a weaker dollar with a breakout on the horizon. A solid daily close above the 1.0800 level could open the doors towards 1.0900. Should bears jump back into the scene, prices could sink back towards 1.0750.

GBPUSD breakout on the horizon?

Pound bulls were injected with fresh inspiration after hot UK inflation figures fuelled expectations around the Bank of England hiking rates. Prices rose unexpectedly in the UK last month, rising 10.4% from January’s 10.1% thanks to the rising cost of food, clothing, restaurants, and hotels. The GBPUSD surged towards 1.2300 and could push higher if the dollar remains shaky ahead of the Fed meeting. A solid move above 1.2300 could signal an incline towards 1.2420.

USDJPY rises ahead of FOMC

The improving market mood has rekindled risk sentiment, dulling the appetite for safe-haven assets like the Yen. Prices have edged higher today, extending the rebound from yesterday with bulls eyeing resistance around 133.30. However, this move higher could come to an abrupt end if a cautious Fed hits demand for the dollar. Looking at the technical picture, sustained weakness below 133.30 may encourage a decline back toward 132.50 and 131.20, respectively. Should 133.30 prove to be unreliable resistance, this could trigger an incline towards 134.30.

AUDUSD waits for catalyst

It’s all about the 0.6720 level on the AUDUSD. This pivotal level could determine whether the currency pair pushes higher or trades lower. Although a strong daily close above this point may open the doors toward 0.6800, more resistance can be found around the 100 and 200-day Simple Moving Averages. Alternatively, sustained weakness under this level could inspire a selloff back towards 0.6650 and 0.6560.