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EUR/USD. September Fed meeting: Can the dollar lose?

The euro-dollar pair froze in anticipation of the announcement of the results of the September Fed meeting. The text of the accompanying statement will be published at 18:00 UTC, and in half an hour, the press conference of Federal Reserve Chairman Jerome Powell will begin. All this suggests that it is better not to approach the trading terminal until 19:00-19:30 UTC – at least in the context of the EUR/USD pair. The first reaction to the text of the final communique may be false, especially since the Fed chair may significantly "redraw" the fundamental picture for dollar pairs. As often happened, when after the publication of the accompanying statement, the price of EUR/USD went in one direction, and following the results of the press conference of the chairman of the Fed, the opposite direction. At the same time, there is also a third act of this "presentation," when after a few hours (usually the next day), traders are determined with final conclusions and lead the price in one of the parties.

Of course, this applies only to the most significant meetings of the Fed - "passing" meetings of members of the American regulator are ignored by the market, limited only to short-term price spikes.

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The September meeting is definitely not a passing one. This is a kind of quintessence of the hawkish expectations of dollar bulls. The "preparation" for this meeting began a month ago, at an economic symposium in the American town of Jackson Hole. During his resonant speech, Jerome Powell then actually announced the curtailment of QE, saying that this year "it would be advisable to start reducing bond purchases."

On the one hand, Powell voiced a hawkish signal, which hypothetically should have supported the greenback. But, as you know, appetite comes with eating, dollar bulls needed additional hints about the timing of tightening the parameters of monetary policy, and most importantly, the approximate timing of the first round of interest rate increases. And here Powell did not meet the expectations of many traders. Firstly, he did not put himself and the Federal Reserve in any time frame, and secondly, he warned investors against false cause-and-effect logical chains. According to him, the very fact of the completion of the incentive program will not have any consequences for raising interest rates. In other words, following the results of the symposium, traders had to put up with the so-called "dovish tapering." Although in August, many experts and even some representatives of the Fed allowed the option of tightening monetary policy next year.

And now, almost exactly a month has passed, and everything has returned to normal. For the most part, the market is not waiting for any decisions from the Federal Reserve, but at the same time, it is waiting for the "go" signal - a clear signal indicating that the regulator will start curtailing incentives this year. Also, some analysts admit the possibility that the Fed's point forecast will be revised towards 2022. The current median forecast of the regulator assumes a double rate increase in 2023, but over the past two months, some representatives have called for tightening monetary policy at the end of the 22nd year. If the point forecast reflects at least a minimal advantage (relative to the previous forecast) towards the next year, the dollar will receive significant support.

Nevertheless, in my opinion, Jerome Powell will take a rather cautious and balanced position today, the essence of which will be reduced to forced defense. There are two more meetings left until the end of the year (in November and December), so the head of the Central Bank has nowhere to rush. And macroeconomic reports have recently begun to present unpleasant surprises. It is enough to recall the latest Nonfarm Payrolls or disappointing data on the growth of the consumer price index (especially with regard to the CPI). Again, the coronavirus, which still reminds of itself with sad anti-records. Recently, an average of 700-800 people a day die from the effects of COVID-19 in the United States. This is the highest figure since the beginning of March this year. And as of Wednesday, only 64% of American adults are fully vaccinated – this is lower than the indicators of a number of European countries and neighboring Canada. All these factors can significantly soften the tone of Jerome Powell's rhetoric. This fact, in turn, will put significant pressure on the dollar.

At the same time, it will be possible to talk about a reversal of the EUR/USD trend only if the head of the Fed questions the expediency of an early curtailment of QE. In all other cases, the dollar will remain "afloat" - even if it temporarily "sags," reflexively reacting to Powell's soft rhetoric. Take a look at the weekly EUR/USD chart: after the disappointing results of the economic symposium in Jackson Hole, the pair went up for exactly two weeks, rising by only 200 points. Then the price turned downside again, despite disappointing Nonfarm Payrolls report and weak inflation. Hawkish expectations "took their toll": the dollar again began to enjoy increased demand.

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In other words, despite the fact that the Fed is slowly, hesitantly and so far only verbally moving towards reducing stimulus support, the US regulator is still several steps ahead of the European Central Bank in the context of normalizing monetary policy. This fundamental factor is the most significant trump card of the US currency, which will probably remain after the September Fed meeting.

Therefore, in my opinion, even in the case of disappointing results of today's meeting, short positions on the EUR/USD pair will not lose their relevance. Of course, we are talking about a medium-term time period (and even more so a long-term one). The support levels (the targets of the downside trend) are 1.1664 (the annual price minimum) and 1.1580 (the lower line of the Bollinger Bands indicator, which coincides with the lower border of the Kumo cloud on the W1 timeframe). It is extremely risky to consider short-term trading now, since the market cannot immediately form its final opinion on the results of the September meeting.

The material has been provided by InstaForex Company - www.instaforex.com