The dollar has strengthened noticeably, although nothing new has happened. The Fed and its promises to start reducing its stimulus program trigger the movement in the market. Everything largely depends on the market sentiment and new comments on the upcoming tapering. Comments by Jerome Powell have made investors take a ride on an emotional rollercoaster, but he changed market expectations and nothing more. Currently, the dollar accumulates volumes after Powell's words about reducing the purchase of bonds in the near future.It is difficult to say what Powell meant by "in the near future". However, the markets interpreted it as "the November meeting" and not later. This is exactly the scenario the dollar is sticking to.As for monetary policy tightening, according to the futures, the markets are expecting a quarter-point rate hike by July. A second hike is due before the end of 2022.There is a lot of hope for the next meeting, and the Fed has no choice but to fulfill its promise. If the regulator does not announce the reduction of its stimulus program in November, there will be an aggressive sell-off.The USD index was maintaining an uptrend in the morning while consolidating more, and the decline may happen.The greenback index did not manage to return above support at 93.7, but there were still risks of a quick run to 93.00. The medium-term estimates remain positive and the dollar may break through the yearly high at 94.50. However, the events of November 3 may establish the market trends.
For the euro, the normally calm Monday turned into a sell-off. The currency became the main outsider of yesterday's trading session. Although, nothing foretold such a scenario. That is what happens when circumstances are unexpected. The dollar went up and the macroeconomic climate in Germany worsened.
Today, analysts make pessimistic forecasts for the euro. According to Commerzbank, the EUR/USD pair formed an outside day pattern on the chart and, apparently, lost its bullish momentum. This means that a further decline in the pair's quotes is possible.
Meanwhile, the intraday Elliott wave analysis is still bullish, which means that the buyers' are taking strides towards 1.1721. The key support is located at 1.1395.
The ECB meeting is closer than the Fed's one. However, it is still unclear what currency may be strengthened more. The European Central Bank, for example, may announce the winding down of its PEPP stimulus this week, which may strengthen the euro.
Thursday promises to be an important and intense day for the EUR/USD pair. Investors consider the meetings not particularly important. The press conference by Christine Lagarde, which will start immediately after the US GDP data is published, deserves special attention.
When it comes to important events for the dollar this week, Friday's release of the Personal Consumption Expenditures (PCE) Price Index may well outweigh the economic growth report. Market watchers are counting on the underlying PCE to make new highs. This is the indicator the Fed uses to measure inflation. Even if the GDP slows in the third quarter, accelerating inflation will offset this negative factor, as it will act as a strong argument for starting to taper the stimulus program. Jerome Powell said the Fed had growing concerns about inflation risks. Thus, the dollar is likely to grow to outperform the euro. However, it is just a guess as a couple of surprises and the scenario may develop otherwise.
