What to expect from Fed?

Get ready with us for the most important event of this week! The FOMC’s statement will be out on Wednesday at 21:00 MT time. Most traders have been waiting for it eagerly as it will define the further movement of the most traded currency on the Forex market – the US dollar. After the report, the market volatility will increase and the whole sentiment may change. The USD has already started declining amid the coronavirus hopes and the overall risk-on mood. Will the Fed will be able to reverse USD’s losses? Let’s discuss two possible scenarios.

1^st scenario: USD will fall

The common consensus is for the dovish Fed’s statement as the last time the Federal Reserve announced that it would allow inflation and unemployment to run above the standard levels. That meant that interest rates would stay at low levels for even longer, and therefore poor returns would attract fewer investors and push the USD down. That’s why, if this time the FOMC echoes its last report, the greenback will get extra headwinds. In this case, pay close attention to EUR/USD as it may surge to the key psychological mark of 1.1900, and also USD/JPY, which may reach the support of 105.20.

According to Goldman Sachs, “we continue to expect the FOMC to eventually adopt outcome-based forward guidance that delays liftoff until the economy achieves both full employment and 2% inflation, although a stricter inflation criterion is possible too”.

2^nd scenario: USD will rise

Anyway, there is still a tiny chance that the Fed delivers a hawkish message, which will underpin the greenback.

TDS claimed that “minimal changes to forward guidance and characterization of QE in the statement; more upbeat tone on the outlook following stronger-than-expected data recently” will drive the US dollar upward.

TDS set the possibility of this scenario to happen at 13%. In this case, USD/JPY may move to 106.20 and EUR/USD to 1.1760.

Follow the Fed’s statement on Wednesday at 21:00 MT time and catch the market movement!

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