The dollar continues to weaken moderately since the opening of today's trading day and at the beginning of the European trading session. As of writing, the dollar index (DXY) is near 111.03, in the lower part of the range formed between the local support and resistance levels 114.74 and 109.37. Despite the decline, the overall upward dynamics of the dollar remains.
Market participants are waiting for the results of the Fed meeting, which will end today, with the publication of the interest rate decision at 18:00 GMT. It is widely expected that the interest rate will be raised again by 0.75%, and such a decision by the Fed is already largely reflected in the dollar quotes. Investors are more interested in what the leadership of the US central bank has to say about the prospects for monetary policy. Many economists believe that the Fed's interest rate will be raised again at the December meeting, and also by 0.75%, but what will happen next is still a kind of secret.
It is also possible that Fed leaders may announce a slowdown in the monetary policy tightening cycle as early as today. If this really happens, then the dollar may fall under a wave of sales. Probably, today's weakening of the dollar is connected with this. Its buyers are still hesitant to push the dollar quotes up, expecting to hear confirmation signals from the Fed leadership aimed at continuing a tough policy.
By the way, yesterday's very positive macro data from the US gives grounds for "bulls" on the dollar to still hope for a tough position of the Fed's leadership regarding the prospects for monetary policy.
The data suggests that despite tightening monetary conditions, US manufacturing businesses are managing to cope, also operating in the face of high inflation and the threat of a global crisis.
Thus, the ISM manufacturing index in October amounted to 50.2 (against the forecast of 50.0). Although at a slower pace than in September, business activity in the US manufacturing sector continued to grow in October. Other details of the ISM report showed that the employment index rose to 50 (from 48.7 in September) and the new orders index rose to 49.2 (from 47.1 in September).
The data presented by ISM strengthened the opinion about the stability of the US economy.
Before the release of the Fed's decision on rates, the ADP report on the level of employment in the private sector will be published today, which precedes the official report of the US Department of Labor and has a significant impact on the market. According to some estimates by economists, the American economy needs to create approximately 150,000 new jobs per month to maintain the stability of the labor market. The ADP estimates that 195,000 new jobs were created in the US private sector in October. The Department of Labor also expects an increase in the NFP indicator by +200,000 new jobs and unemployment of 3.6%, corresponding to the minimum pre-pandemic levels. These are very positive indicators.
Together with the data published yesterday on the state of the manufacturing sector of the American economy, they give more reason to expect tough decisions from the Fed regarding monetary policy. And this is a strong fundamental bullish factor for the dollar. As for its DXY index, in this case, the breakdown of the local "round" resistance levels 114.00, 115.00 will be a signal that the DXY index will return to growth.
In an alternative scenario, and if market participants consider the decision and comments of the Fed's monetary policy leaders to be soft, then, as we noted above, the dollar may fall under a wave of sales, and throughout the market.
As for the main competitor of the dollar on the euro currency market, its quotes fell sharply against the dollar yesterday immediately after the publication of the ISM report, although during the first half of yesterday's trading day the EUR/USD pair developed an upward trend.
The price broke through two strong short-term support levels of 0.9910, 0.9880 on the EUR/USD charts yesterday, but today it still returned to the zone just above the 0.9880 support level. As of writing, the EUR/USD pair is trading near the 0.9888 mark, waiting for new drivers to move in one direction or another. Today's publication of the Fed's decision on rates will become such a driver.
