On Tuesday, markets are witnessing the EUR/USD pair edging closer to the critical resistance level of 1.1150 during European trading hours. This movement is fueled by the ECB’s cautious stance and anticipation surrounding the Fed's upcoming decisions.

The Euro is exhibiting resilience despite ongoing concerns about Germany's economic slowdown and a notable drop in Eurozone inflation to 2.2% in August—the lowest in three years. ECB officials have refrained from committing to a predetermined path for interest rate cuts, opting instead for a meeting-by-meeting approach. Notably, ECB Governing Council member Peter Kazimir emphasized the need to wait until December for clearer economic signals before making further policy moves. This less dovish tone has bolstered the Euro, as markets adjust expectations for imminent rate cuts.

The US Dollar index is trading flat. Traders are in a holding pattern ahead of Wednesday's main event—the Fed's policy decision. The FOMC begins its meeting today, with all eyes on whether the Fed will opt for a 25 or 50 basis points (bps) interest rate cut. Interest rate derivatives are currently pricing a 67% probability of a 50 bps cut, a significant shift from the 66% chance of a 25 bps cut just a week ago.

On the technical side, DXY approaches key medium-term support – lower bound of the wide descending channel and markets apparently brace for a bearish breakout that will be triggered by the dovish Fed action and outlook suggesting more policy easing is in the pipeline:

Today's US Retail Sales data could add another layer of intrigue. Forecasts suggest a modest 0.2% increase for August, down from a 1.0% rise in July. Excluding autos and transportation, sales are expected to tick up by 0.3%. While this data is typically market-moving, its impact may be muted unless we see a contraction, which could strengthen the case for a more aggressive rate cut by the Fed.

Meanwhile, the British Pound is staging a rebound against major currencies. Investors are turning their attention to the UK's Consumer Price Index data for August, scheduled for release on Wednesday. Expectations are for core inflation—which strips out volatile items like food and energy—to rise to 3.5% from 3.3%, with headline inflation holding steady at 2.2%. Traders should pay particular attention to the services inflation component, a metric closely watched by the BoE, which saw a sharp deceleration to 5.2% in July—the lowest in over two years.

The GBP/USD pair is currently approaching a key area of confluence, where the price is nearing the upper bounds of both a short-term and medium-term ascending channel. This confluence often acts as a strong resistance level. However, the recent swift rebound from the 1.30, after an extreme upside move, suggests bullish momentum, indicating the possibility of an upside breakout. If today's Fed decision signals a softer stance, it could further fuel this breakout, pushing the pair above the channel: