The euro-dollar pair is behaving extremely cautious ahead of the announcement of the results of the September Federal Reserve meeting. Tomorrow traders will be able to assess the US central bank's mood, which has recently become more and more dovish. And although the US macroeconomic reports suggest a gradual recovery of the country's economy, most of them are belated. Meanwhile, the prospects for further revival of key indicators remain vague, especially in the context of the political clinch in which the Democrats and Republicans find themselves in. The long-suffering bills on additional financial injections into the US economy remain as drafts: congressmen failed the proposals of both the Democratic Party and the Republican. The last vote on this issue took place last Thursday. As a result, it became clear that the American economy will remain without an additional aid package in the foreseeable future.
This factor is an absolute disadvantage for the greenback. On the other hand, key macroeconomic indicators have recently been in the green zone, showing stronger growth relative to preliminary forecast values. The unemployment rate fell from 10.2% to 8.4%. Although according to experts' forecasts, this key indicator should have fallen to only 9.8%. In addition, the dynamics of wage growth was pleasing. This fact is especially important right now, when the Fed has revised its monetary policy strategy, becoming more tolerant of rising inflation. According to forecasts, the level of wages was expected to fall to zero (on a monthly basis). But in reality, this indicator came out in the green zone: instead of declining, it rose to 0.4%.
As for inflation, data for August was published just last Friday. The overall consumer price index slowed to 0.4% on a monthly basis, while experts predicted that the indicator should have fallen to 0.3% (it came out at 0.6% in July). In annual terms, overall inflation accelerated to 1.3%, with growth forecast to 1.2%. As for the core inflation index, which does not take into account volatile food and energy prices, the situation is similar. On a monthly basis, the indicator slowed to 0.4% with a decline forecast of 0.2%; on an annual basis, the indicator increased to 1.7% against a growth forecast of 1.6%. In other words, inflation reached forecast levels - although in monthly terms, the indicators slowed down their growth, while in annual terms, they increased the growth rate. Consumer inflation (CPI) in August increased from 1% to 1.3% per annum.
The market carefully watches the dynamics of wages and the growth of the price index. The logic here is obvious: the more people get, the higher their consumer activity. The higher consumer activity, the faster inflation increases. Well, in the end – the faster inflation increases, the faster the US central bank will increase the interest rate. This causal relationship reinforces the importance of wages in the context of the Fed's monetary policy outlook.
Thus, the intrigue on the September meeting remains. On one side of the scale – the growth of macroeconomic indicators, on the other – political uncertainty and a failed vote in the Senate on the anti-crisis bill. Fed Chairman Jerome Powell can put the appropriate emphasis, supporting the dollar or drowning it with his rhetoric. The market also expects additional comments from the Fed regarding its updated strategy. In particular, we are interested in the question of how high the central bank will "allow" inflation to increase. If specific digital values are announced much higher than the two percent level (which is unlikely), the dollar will be under strong pressure. But most likely, Powell will limit himself to previously voiced phrases that the Fed will "tolerate" inflation just above the target level.
In general, experts do not expect anything marvelous from tomorrow's meeting: the parameters of monetary policy should remain the same. The dollar will be guided by the general mood of the central bank and comments on the new strategy. If Powell announces more pessimistic forecasts and focuses on political uncertainty, the dollar will come under pressure, and the EUR/USD pair, accordingly, will have a reason to settle within the 19th figure. Otherwise, the price could fall to the first support level of 1.1750 (the lower line of the Bollinger Bands indicator on the daily chart), and in a more optimistic scenario for the greenback, to the support level of 1.1690 (the upper border of the Kumo cloud). In conclusion, take note that buyers were unable to enter the 19th figure today - sellers were immediately attracted to the pair. This suggests that traders are not sure which side Powell will take tomorrow. In view of this uncertainty, trading decisions on the pair can only be made based on the results of Powell's final press conference, which will take place immediately after the results of the September meeting are announced.
