FX.co ★ Results of the July Fed meeting

As expected, the euro/dollar pair showed increased volatility yesterday. Initially, the price fell to the lower limit of the range of 1.1750-1.1830, but it went up and overcame the resistance level literally half an hour later, gaining a foothold in the middle of the 18th figure. The results of the July meeting were de facto not in favor of the US currency, although the regulator voiced rather "hawkish" and optimistic messages. But, firstly, the market expected more – the dollar once again became a victim of inflated expectations of traders. Secondly, the Federal Reserve limited itself to declarative intentions, while traders were clearly determined to be specific in terms of the timing of the QE curtailment. Even the "hawkish" meeting, at first glance, did not impress dollar bulls.

So, yesterday, the Fed members left all the parameters of monetary policy in the same form: the federal funds rate remained at the level of 0.00-0.25%, and the volume of QE has not changed – the regulator will continue to buy treasuries for $80 billion a month and mortgage securities for $40 billion a month.

However, the wording of the accompanying statement has changed. First of all, the Central Bank surprised everyone with the statement that it is observing some progress in moving towards the targets of maximum employment and price stability, the achievement of which will allow us to start tapering. The term 'tapering' is most often found in sports, it means reducing the amount of load after a heavy training block. Clarifying the above phrase, the regulator pointed out that "the sectors most adversely affected by the pandemic have shown improvement but have not fully recovered." The previous version of this phrase was as follows: "The sectors most adversely affected by the pandemic remain weak, but have shown improvement." In this context, the Federal Reserve clarified yesterday that monthly asset purchases will be carried out until significant progress is made in moving towards the targets of maximum employment and price stability. The central bank will continue to assess the progress of the economy at the next meetings.

This means that despite a significant increase in inflation and an improvement in the situation on the US labor market, the US regulator is not ready to talk about the timing of the completion of QE. The central bank will continue to monitor the situation in the country's economy, noting the dynamics of key macroeconomic indicators.

The market reacted emotionally to the change in the wording of the Fed's final communique. The euro/dollar pair fell to the level of 1.1770, while before the verdict was announced, the price was at the level of 1.1840. However, within half an hour, from the beginning of Jerome Powell's press conference, EUR/USD buyers began to regain their lost positions.

The head of the Federal Reserve increased pressure on the US currency. He admitted that the Central Bank was discussing options for changing the volume of QE, continuing to assess progress in moving towards the conditions necessary to start curtailing incentives. But at the same time, Powell did not talk about any specific time frame: according to him, the timing of the collapse will depend on the incoming data. Also, he voiced that the Fed will notify the markets in advance before making policy changes. This remark reduced the likelihood that the regulator will start curtailing QE this fall (although many experts, in particular, currency strategists at Goldman Sachs, voiced such assumptions).

As for the fate of the interest rate, Jerome Powell voiced an unambiguously "dovish" position. He said that the Federal Reserve is definitely still very far from raising rates, and at the moment this issue is not being considered at all. The head of the Federal Reserve once again stressed that the regulator does not intend to fight inflation by raising rates, especially since, in his opinion, inflation will decrease in the medium term.

Thus, the "hawkish" scenarios of traders and experts did not materialize yesterday. The Federal Reserve, on the one hand, admitted that it had discussed curtailing QE, but simultaneously made it clear that it was not ready to talk about the specific timing of the first steps in this direction. This fact disappointed investors, after which the dollar fell under a wave of sales.

And yet, despite some disappointment with the Fed's indecision, it is necessary to admit that the American regulator shows a more hawkish attitude compared, in particular, with the European Central Bank. ECB members at the last meeting voiced a categorically dovish position, refuting rumors about an early curtailment of QE and (especially) an increase in the interest rate.

In other words, the continued uncorrelation in the medium term will put background pressure on the EUR/USD pair, especially on the eve of the economic symposium in Jackson Hole, which will be held at the end of August.

All this suggests that it is now most expedient to take a wait-and-see attitude for the pair. The "power reserve" of the EUR/USD pair is relatively small – there is a resistance level at 1.1890, which corresponds to the upper line of the Bollinger Bands indicator on the daily chart. Overcoming this target will allow the pair's bulls to enter the 19th figure. But at the same time, there is a high probability that sellers of the pair will become more active in this price area, while buyers of EUR/USD will en masse fix profits, not daring to storm the price barrier. Therefore, all attention is focused on the resistance level of 1.1890. If the northern momentum fades in this price area, we can consider the option of short positions with the first target of 1.1800 (the Tenkan-sen line on D1).