FX.co ★ Timing Specification of the beginning of balance reduction by the Fed could lead to an increase in the dollar

The main event for today is the result of the Fed meeting regarding the monetary policy. Investors do not expect that rates will be change, except when there are objective reasons for this. However, any statement about the early start of the balance reduction will serve as a signal for the regulator to start this when the autumn occurred.

A fairly overbought currency against the US dollar in the Forex market were adjusted down today, as the market has strong expectations that after the Federal Reserve meeting, a signal for the balance reduction worth 4.5 trillion dollars will begin in September. This is the beginning of a significant and absolutely epoch-making event that will mark the start of liquidation of the last stronghold of the soft bank policy after the longest crisis dated 2008.

When a signal is already shown and the probability is quite high, we should expect that the correction will continue towards the major currencies against the dollar, intended for a significant profit-taking. There's also a chance that it could put pressure on commodity prices and raw material assets with a corresponding negative impact on commodity and commodity exchange rates.

We have previously mentioned that the growth of major currencies against the US dollar over the past six months was mainly due to its weakness. This was initially on the wave of a successful start of the D.Trump administration and then against the slight decline in economic growth and most importantly, inflation. But, despite these negative factors, the weakening of the dollar has obviously extend on both technical and fundamental point of view. The decision to start reducing the balance will be an important hint for changing the trend in the currency markets.

For comparison, unlike the ECB, Bank of England and Central Bank of Japan, the Fed is trying completely normalize its monetary policy, which sets the dollar in a more favorable position in the future. We doubt that the economic situation in the eurozone will improve significantly, which means that during the fall, the ECB could deal with the fact that the programs of buying government bonds were mostly German. However, there is another reduction in purchase, for instance, from 60 billion euros to 40 billion euros per month.

In this case, we should expect a wave of another discrepancy in the monetary policies of the Fed and the ECB's global reversal of the main currency pairs down to local lows earlier this year. A similar picture will also occur in other currency pairs with the US dollar.

Forecast of the day:

The EURUSD pair can continue the correction down to 1.1560 initially and then to 1.1490, after reaching the local maximum and overcoming the support line at 1.1625.

The AUDUSD pair is trading near 0.7880 on the wave of the weak data on consumer inflation in Australia. The pair would probably to continue its decline, following the positive US dollar due to the outcome of the Fed meeting about monetary policy. On this wave, the price may drop to 0.7815.