Today, the attention of the market will be drawn to the results of the Fed's monetary policy meeting, which began on Tuesday and will end today with the announcement of the result at 18.00 Universal time and a press conference by the Fed Chairman J. Powell at 18.30 Universal time.
This topic has already been discussed many times, projecting the possible result and the reaction of the market. Therefore, we will now consider the opinions that are on the market among investors and market players.
Some believe that the Fed will not only decide to start the process of curtailing measures to support the US economy, which have been in an active phase for the last year and a half and were taken amid unprecedented measures to fight the consequences of coronavirus infection, but will also outline this process in general terms. Others believe that the regulator will actually announce measures to narrow the volume of asset repurchases – government Treasury bonds and corporate mortgage securities, but will not specify this process in more detail. This will be leaving itself the possibility of correction, and maybe even stopping these actions at some stage, having revised its plans due to the deterioration of the situation in the national economy.
As for the topic of updated forecasts for GDP growth, it is difficult to discuss anything about unemployment, inflation, and the level of interest rates for the next 2-3 years. Nevertheless, we can say that if the plans are not so noticeably optimistic, then this is will be a reason to assess the prospects of the Fed's monetary policy as softer and more cautious. Such an assessment will undoubtedly manifest itself in the resumption of demand for company shares and will support stock indices. In turn, the US dollar will be under some pressure, but it is unlikely to noticeably fall.
Regarding our view for the tone of Powell's speech at the press conference, we believe that he will try to calm the financial markets by maneuvering and not exposing the regulator's course to the public, trying to compensate for the growing tension in the financial markets with ambiguous phrases.
In general, it is necessary to wait for the result of the meeting and the speech of the Fed Chairman and then take action.
Forecast of the day:
The EUR/USD pair is stuck at the level of 1.1725 while waiting for the results of the Fed meeting. Any hints at the prospect of a softer movement towards the normalization of monetary policy will support the demand for risky assets and push the pair towards 1.1800.
The price of spot gold could also receive support amid increased demand for risky assets and a weakening US dollar. In this case, the price will further rise to the level of 1807.00. From a technical point of view, it needs to rise above 1782.50.