Fading Fed rate hike expectations may risk a squeeze of EUR shorts after this week's FOMC. A soft patch for the US economy has disappointed those expecting rate hikes, sending USD lower since the March FOMC and 10-yr UST yields down 13 bps. But EUR/USD shorts are USD 2.5 bln larger over that time. If the Fed meets dovish expectations, a short squeeze seems likely. Unlike in March, the sideways trading is making those short EUR nervous. A bid for USD/Asia has also dissipated. ACBs won't be intervening to buy back those USDs in the majors as they were in March. Such flows led to ACB EUR/USD selling over 1.1000, which was key in establishing the top near there after the March NFPs. With 78% of USD longs held versus EUR vs 50% in early March, a surprisingly hawkish Fed could see EUR/crosses boosted as players re-establish USD longs vs other currencies than EUR. (IFR)