"Fear has big eyes": something like this can be said about the situation on the foreign exchange market on the eve of the last Federal Reserve meeting this year. The dollar index dives down, showing the weak position of greenback against a basket of major currencies, and the yield of 10-year treasuries fell to 2.83%, finally leaving the area of three percent. It is likely that panic in the near future will only increase, especially after the recent comments of US President Donald Trump.
It is worth noting here that members of the American regulator are forced to observe a "silence regime" for 10 days prior to the meeting itself – this rule is strictly observed by them. But the president of the country is not burdened with such restrictions. And although Trump's predecessors tried not to comment on the Fed's actions at all, the current owner of the Oval Office has been putting verbal pressure on the Fed for several months. In the summer of this year, he rather rigidly commented on the next rate hike, saying that the actions of the central bank harm the economic growth of the country. After that, Trump returned to this issue several times, calling the Fed's policy "insane."
Jerome Powell diplomatically ignored the criticism of the head of state and did not change the tone of his rhetoric. This fact calmed the markets for a while — until the end of autumn, the Fed members started talking about the level of the neutral rate. Initially, Richard Clarid said that the interest rate has almost reached its neutral level, so further tightening of monetary policy may have a negative impact on the key indicators of the US economy. Then Powell touched on this topic: in his opinion, the rate is "just below" the neutral range. And although this range is quite wide (2.5%-3.5%), this position of the Fed chief has disappointed market participants. After all, not so long ago he said that the regulator may exceed the neutral level if the main indicators of the economy grow at an advancing pace.
In other words, traders have well-founded fears that the regulator will take a more cautious position regarding future prospects. That is why the dollar feels rather uncertain at the beginning of this week. Donald Trump also added fuel to the fire, which a few hours before the beginning of the two-day meeting again criticized the possible tightening of monetary policy. In his Twitter account, he said that raising the rate in the current conditions is "unbelievable." In his opinion, in the conditions of a strong dollar, low inflation and a slowing economy of China, it is absolutely impossible to raise the rate.
Today he supplemented his opinion with another tweet, the text of which is worth quoting: "Do not let the market become even less liquid than it is now. Feel the market, don't just chase the meaningless numbers." I think any comments are unnecessary here. And although de jure Trump has no direct influence on the Fed, the position he voiced complemented the gloomy picture on the eve of the key meeting for the dollar.
The weakening of the US currency allowed the euro-dollar pair to demonstrate a more or less clear correction: the price again approached the boundaries of the 14th figure. The single currency has also found a reason for its growth: an epic with the problem of the Italian budget could end tomorrow. According to the European press, the European Commission will announce its verdict on Wednesday. If the parties still come to a compromise, the euro will receive a strong enough support, since this issue has kept traders in suspense since the beginning of autumn.
In addition, against the background of an empty economic calendar, a report from the IFO was published today: on the one hand, the indicators came out worse than the forecast values, but, on the other hand, the comments to the report offset the negative effect. According to experts of the research institute, although the German economy is slowing, it does not show signs of recession. This is a very weak reason for optimism, but against the backdrop of a weakening dollar, it was the impetus for a small increase in EUR/USD.
From a technical point of view, the situation is as follows. On the four-hour chart, the pair reached the upper line of the Bollinger Bands indicator (1,1401), but failed to break it, so it retreated by several dozen points. Despite an unsuccessful assault attempt, the price still remains within the short-term upward movement, as the Ichimoku Kinko Hyo indicator formed a bullish "Parade of lines" signal. The nearest target of the impulse is the 1,1401 mark, when overcoming which it will be possible to talk about the development of the upward movement (up to the 15th figure, that is, to the upper limit of the Kumo cloud on the daily chart). But this growth can only be due to the "dovish" results of tomorrow's Fed meeting.
