The US inflation report managed to stabilize market sentiment for some time. A rise in consumer prices became slower. It means that the Fed will hardly cut stimulus programs in the near future. However, according to Jerome Powell, inflation growth is a short-lived phenomenon and it is not the main factor that determines a further monetary policy approach. The key factor is the recovery of the labor market and the whole economy.
What is more, the US has already begun the normalization of the monetary policy. Supporters of the hawkish approach are becoming more numerous. More and more representatives of the regulator speak up for the withdrawal of stimulus measures. It is quite possible that the Fed is preparing markets for changes in the monetary policy that may occur in 2022.
Yesterday, Esther George, president and CEO of the Federal Reserve Bank of Kansas City, said that it was high time to close the QE program. Hawkish announcements were also made by other representatives of the Fed such as Raphael Bostic and Eric Rosengren.
The US Fed is changing its stance. Next week, markets are likely to continue receiving hawkish signals.
Market participants are likely to shift their attention to the Jackson Hole Economic Symposium. Investors could become less active. The event may unveil a lot of new information that is why it is a good idea to take the wait-and-see approach. What is more, in September, the FOMC meeting will take place. Markets are also expecting a lot from this event. Notably, during the meeting, the regulator may upwardly revise its labor market estimates.
The US dollar index is likely to receive support near the levels of 91.50-92.00. Once the issue of the withdrawal of support measures becomes the most discussed one, the indicator will reach new highs above 93.50.
Analysts at HSBC have also changed their forecast for the US dollar. Now, they expect a rise instead of a drop against a basket of major currencies. The forecast was changed due to the rapid growth in the global economy and the beginning of the normalization of the Fed's monetary policy.
Earlier, economists supposed that the euro/dollar pair would increase to 1.2300 by the end of the year. Now, they foresee a decline to 1.1500.
At the moment, the euro is not very strong. On Wednesday, the greenback's downward correction slightly supported the single currency. However, traders decided not to buy the asset. From the technical point of view, it means that the downtrend is still in force. Bears continue controlling the market. On the daily chart, technical indicators are in the red zone and they are far from the overbought levels.
A strong support level for the euro/dollar pair is located at 1.1700. If the pair breaks the level, the trend will remain bearish. Traders may begin opening sell positions with the target of 1.1660. After that, the pair may reach the low near 1.1600 logged in November 2020.
The upward correction is quite possible. Buyers may break the level of 1.1755 amid positive news. However, the pair will hardly rise higher. Bulls may push the euro just to 1.1800. This will be considered as a buy opportunity. The next resistance level will be located at 1.1830. If the price breaks the resistance, important levels will be located at 1.1800 and 1.1900.
The bearish scenario will be eliminated, if buyers go beyond the 19th pattern. In this case, an important psychological target will be seen at 1.2000.
