FX.co ★ Fed meeting: two main scenarios

Tomorrow will be a key event for all dollar pairs - the US Federal Reserve will hold its regular meeting. In addition, the Fed will publish its economic forecast, and Janet Yellen, for the first time in a few months, will communicate with journalists at a press conference. Such a busy evening will provoke strong volatility, especially for the main currency pair - the euro-dollar.

Anticipating a price swing is not so difficult. It is much more challenging to predict the direction of the price. Despite all the seeming transparency of tomorrow's meeting, we should not take it as passing. Yes, the probability of a rate hike in September is zero, but the regulator can still surprise the market to a considerable extent. After all, in addition to the interest rate, there is another issue on the agenda - the reduction of the bond purchase program. By and large, this is also an element of tightening monetary policy, so this factor can also affect the dynamics of the pair.

In general, there are two most likely scenarios. In the first one, the "hawkish" version, the Fed will announce the start of a reduction in the balance sheet either in October, or (which is unlikely) as early as this month. Since at the moment there is no consensus in the market about when exactly the Fed will start this process, any mention of specific terms will cause agitation among traders, and the dollar will start to go up.

Also, it is not excluded in this version that Janet Yellen will positively assess the potential of the US economy in spite of everything, and express hope for the recovery of inflation. Remember that the market remains almost 50 percent. Therefore, such "encouraging" comments will be the scales in favor of the regulator's resolve. It is also possible that Yellen will touch upon the issue of tax reform. After all, next week the details of the compromise solution on this issue between Trump and congressional-democrats will be revealed. Yellen, as a rule, avoids preliminary assessments, but sometimes she does touch on similar topics.

In general, the "hawkish" scenario, the past few days, has become a priority in the market. Given a 50 percent chance of a hike in December, traders are eager to accept any news about the beginning of a change in the Fed's balance sheet: it does not matter when it starts in September or October.

However, my subjective view remains on the side of the "dove" version of the development of events. There are several factors in favor of this argument. Firstly, it is the consequences of the hurricane. According to preliminary estimates of analysts, the total damage to the economy of the United States by the hurricanes "Irma" and "Harvey" is about 290 billion dollars - this is almost 1.5% of the country's GDP. Such a huge damage can affect the dynamics of growth in the US economy in the third quarter. And this fact certainly will not remain unnoticed by Yellen.

Furthermore, common problems of the American economy are the weak growth in inflation and the level of salaries. In this scenario it will be necessary first of all to study the Federal Reserve in order to understand the general mood of the regulator. Although the personal stance of the head of the Fed is extremely important. If she declares the "temporary nature" of weak inflation, then the dollar's reaction will be appropriate. But if the head of the Fed, in the United States, in the case of the head of the Fed, in this case, all hopes for the December rate hike will collapse.

In addition, Janet Yellen can touch upon the topic of geopolitical tension. And, although the situation with North Korea is no longer so urgent, it is still too early to remove this issue from the agenda. This is another factor of uncertainty in the sequence of the remaining of those enumerated. Yellen's general caution, tomorrow's market, can hardly count on too firm comments and decisive actions.

Most likely, we will see a "combined" option: on the other hand, on the other hand. On the one hand, the tone of the accompanying statement is neutral, and on the other hand, the soft rhetoric of Yellen at the press. Such a contradictory fundamental background will make the EURUSD and the bears nervous as bulls.

Therefore, to determine the boundaries of impulse increase or reduction the pair, it is recommended to consider the technical picture of EURUSD. In general, the pair continues to maintain the potential for its growth, as the price is between the middle and top lines of the Bollinger Bands indicator. In addition, the indicator Ichimoku Kinko Hyo almost formed a bullish signal "Parade Line". The first resistance level is 1.2050 (the top line of the Bollinger Bands indicator on D1). The next resistance level is 1.2091 (the high in the past two years). The support level is 1.1810 - the bottom line of the indicator BB. If this mark is broken, the northern scenario will lose its relevance.