The Fed's June meeting was in favor of the US currency. The US dollar index surged to 91.40, updating a two-month high. The main dollar pairs also behaved accordingly. In particular, the EUR/USD pair collapsed by almost 150 points, moving below the support level of 1.2000. The last time the pair stayed in this price area was at the end of April.
However, the downward momentum faded during the Asian session: the EUR/USD bears could not build on their success, so the pair drifted near the borders of the 1.20 mark. It can be assumed that traders began to massively take profits after the price broke the level of 1.2000, thereby extinguishing the downward wave. This suggests that traders are still skeptical about the US dollar, despite some "hawkish" notes of the June meeting. After all, sellers of this pair need to consolidate below the 20th figure in order to reverse the upward trend, which acts as a kind of outpost. However, after the level of 1.2000 is broken, each subsequent point is given to the bears with great difficulty, which indicates the riskiness of short positions.
In my opinion, the dollar bulls rushed to the "hawkish" conclusions, reacting violently to the distant prospects. The rhetoric of the US regulator was clearly harsher compared to the previous meetings, and this fact played in favor of the US dollar. But if we analyze the results of the June meeting, we can come to a rather unexpected conclusion: the US dollar is now growing only due to the expectation of tightening monetary policy. The hypothetical probability of an interest rate hike in 2023 and the possible discussion of a plan to curtail QE at one of the future meetings pushes the US dollar up throughout the market. Will these fundamental factors, which have a very vague outline, continue to provoke interest in the US dollar on an ongoing basis? It sounds doubtful, given the fact that the US economy must keep a high bar for the pace of its recovery to tighten the parameters of monetary policy.
Now, let's return to the results of the June meeting. The whole point of yesterday's meeting is in the forecast of the members of the Committee on Open Market Operations. The chart of individual forecasts of members of the US regulator shows that 13 out of the 18 members of the Fed spoke in favor of at least one rate hike by the end of 2023. As a comparison, only 7 officials spoke in favor of this scenario based on the results of the March meeting. Nevertheless, dollar bulls were particularly excited by the fact that 11 of the Fed's 18 members now forecast at least two" rate hikes by the end of 2023. At the same time, 7 of the 18 members of the Fed predict a rate hike as early as 2022. It can be recalled that this scenario was supported by four members of the regulator in March. In addition, the fact that the Fed raised its forecast for US GDP growth for the current year to 7%, while maintaining a similar forecast for the next year at 3.3%, also supported the dollar.
Commenting on the updated point forecast, Fed Chairman Jerome Powell said that they should be treated with "a great deal of skepticism" as they do not always come true. Powell added that while vaccinations are limiting the spread of the coronavirus, "the pandemic still carries risks." According to him, the rate of vaccination in the US has noticeably slowed down, while the new strain of COVID-19 has appeared in the country.
As for the prospects for QE, the Fed's head said that the members of the regulator want to first see significant progress in the economy and only then start discussing the issue of curtailing the stimulus program. At the same time, Powell rather vaguely voiced the target time. According to him, the Central Bank may begin discussions on curtailing the stimulus "at subsequent meetings, if progress in the economic recovery continues." It should be noted before the meeting, most experts interviewed by Reuters were confident that the Fed Chairman will announce the curtailment of QE at the June meeting, and will begin to implement this scenario at the August or September meeting. However, the Fed decided not to rush into this issue.
If we generally ignore the long-term prospects, it can be concluded that the regulator not only maintained the status quo but also took a rather dovish position, refusing to discuss plans to curtail QE. In fact, the Federal Reserve kept the target range for the federal funds rate at 0.00-0.25%, where it has been since March 2020, and left the volume of the asset purchase program unchanged at $ 120 billion per month. At the same time, the regulatory members emphasized that the status quo will continue until further significant progress is made in the labor market and inflation.
Therefore, it can be assumed that the current growth of the US currency will be short-term, although it is likely to continue to show its strength in the next few days, moving by the inertia of emotional decisions. In particular, the EUR/USD bears will try to consolidate in the area of the 1.19 level. But if we talk about broader time ranges, then the prospects for the US dollar look vaguer. The results of the Fed's June meeting increase the importance of US macroeconomic reports: any release that comes out in the "red zone" (especially in the field of inflation or the labor market) will have a painful impact on dollar positions.
To summarize the above-mentioned, it can be concluded that the results of the June meeting of the Fed members can only be conditionally referred to as "hawkish". There are too many "buts", too many "ifs" and too distant prospects for tightening monetary policy parameters provided that the US economy does not slow down the pace of its recovery. However, it can be seen that the market interpreted the June meeting in its own way, having heard hawkish signals from the Federal Reserve.
In my opinion, short positions on the EUR/USD pair still look risky, despite the pressure of dollar bulls. Now, it is suggested to stay out of the market and watch how the pair behaves while struggling for the level of 1.20. If the bears can not go below the support level of 1.1950 (lower limit of the Kumo cloud on D1), we can consider longs with the first target of 1.2000 and the main target of 1.2050 (upper limit of the Kumo cloud on the same timeframe).
