FX.co ★ USD may decline only to gain growth momentum

News about Jackson Hole is getting annoying but anyway, the fate of the markets depends on this event. Jerome Powell's speech is scheduled right after the beginning of the American session. The currency quotes are awaiting signals. Here we try to analyze the available information once again and consider possible outcomes of the Fed's Chairman speech.

Three RSB Presidents gave us some hints on how the situation may unfold. St. Louis Fed President James Bullard, Dallas Fed President Robert Kaplan, and Kansas City Fed President Esther George laid out some information concerning the monetary policy. The officials think that the central bank may reduce the pace of its purchases to $15 billion monthly. Also, they noted the tapering program timings which should be finished at the end of Q1 or Q2 of 2022. In this way, the Fed will be able to raise its key interest rate by the end of the next year.

All three Presidents mentioned above are known to be "hawks". They were expected to deliver such statements but the markets caught their message. The main goal of the central bank is taking shape. The Fed will start its way towards the tapering program and normalizing the economy even if Powell refrains from bold statements.

On the other hand, market players are worried that Powell may follow the hawkish rhetoric. It is possible that such a scenario could cause a serious surge of volatility in the stock markets. A potential downward correction may exceed 5% and the worst is over 10%.

Traders have to hope for the silver lining. Stimulus tapering does not offer a quick solution. Nor it is a piece of cake. Stimulus tapering is a lengthy process and the economy cannot be simply deprived of support measures. The fact that it is staying on track to recovery requires a new approach which includes gradual tapering.

If we look closely at the previous tapering programs that occurred not only in the US but in Europe, one may consider that bears are not likely to cast shadows on the global stock market. Correction pullbacks may happen more often than we suppose.

However, the US dollar faces a bit more complicated circumstances. The US is trying to be the first pioneering every sphere and this behavior can be applicable to the monetary policy too. Firstly, the Fed will announce its monetary policy, then other developed countries will catch them up after taking a pause, of course. The only business remaining for the dollar is growing. Therefore, the dollar uptrend is likely to strengthen.

Technically, the USD decline is completed and now it has found a flattened consolidation. Traders are obviously waiting for a sign of policy normalization, which will start the dollar rally.

This scenario sounds perfect but it is essential to have a backup plan. Powell is not full of surprises. Still, he can blow the markets with a radically dovish approach. The response is predictable as the markets will soar and the dollar will plummet. Also, the USD index may find new lows this year.

The euro is held in the trading zone despite its unsuccessful attempts to rise. However, the bearish trend is still relevant.

From the technical point of view, much depends on how the 1.1727-1.1765 area unfolds. The price seems to move up out of this range, but there is no decisive action from the buyers. Bulls do not have the strength and courage to start breaking the resistance at 1.1800.

The EUR/USD pair is located in a dead zone. We need to wait for a downward break from the 1.1774-1.1756 levels to join the sellers. The first sales target is 1.1660.

If the quote breaks out of the range above, then reasonably assume a jump towards 1.1800. Further from this mark, it is possible to look for selling points.

Meanwhile, a growth above 1.1805 will cancel the selling scenario and target the euro to 1.1900. It is worth joining the bullish trend only if new supports above 1.1800 are formed.