The main market tendency today is that the US dollar is rising against its major peers and riskier assets such as stocks and oil are plummeting.
Preview into the FOMC meeting
Pay attention: the FOMC meeting is today at 21:00 MT time
Why is it so important?
No changes to the interest rate are expected. The Fed will publish the statement, which will contain the commentary about the economic conditions, discuss the economic outlook and offer clues on the future path of the monetary policy.
The recent comments by policymakers on a rate cut later this year increased worries in the market.
In addition, various inflation measures dropped below the 2% target and raised concerns over the rate cut even more.
What to watch?
- If the dovish scenario is confirmed, we may see the revision of the inflation forecasts to the downside.
- Also, we expect the shift in dot plot to the expectations of one rate cut by the end of the year.
As the dovish expectations are already priced in, any hawkish comments by the Fed Chair Jerome Powell will bring positive momentum to the USD. On the other hand, strong dovish tone of the statement will weaken the greenback.
On the H1, the pair has been awaiting the FOMC meeting. It has been trading between the resistance at 1.12 and 1.1188 since the beginning of the trading day. Hawkish surprise from the Fed may pull the pair below the 1.1188 level. The next levels in focus for bears lie at 1.1177, 1.1162 and 1.1147. If the USD weakens today, bulls will break the resistance at 1.12 and target the next levels at 1.1211, 1.1222 and 1.1242.
On the same timeframe, the USD rose against the JPY at the beginning of the day but was not able to stick near the 100-hour SMA. At the moment of writing, the pair has been moving towards the support at 108.35. The next support levels are placed at 108.28 and 108.24. On the other hand, bulls keep their eyes on the resistance level at 108.44. If it is broken, the pair will rise further where it will face the 108.49 and 108.53 levels as resistances.
The European Central Bank will publish the monetary policy statement with the interest rate decision on January 21, at 14:45 MT time.
Joe Biden is going to unveil a Covid-19 relief package of about $2 trillion. After this announcement, the 10-year Treasury yield rose, adding support for the USD.
The US dollar’s weakness offered a boost to emerging-market currencies and oil.