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26.01.202123:38 Forex Analysis & Reviews: Is it worth buying the euro before the Fed's rate decision

Exchange Rates 26.01.2021 analysis

The western platforms showed mixed dynamics on Tuesday. The focus is on corporate reports in the US. The season has just started, and the reaction to the data will determine the succeeding movement of the markets. Despite the fact that investors recently prefer to take profits, the balance is still shifted in favor of positive sentiment.

The dollar fell during the US session after some attempts to grow in the afternoon. The US currency has periodically tried to move forward over the past three weeks, thus demonstrating the possibility of changing the trend. However, you should not rush to conclusions, however, as well as stand up in advance against the current downward trend. We have yet to receive proper signals about the change in the trend for the greenback.

Exchange Rates 26.01.2021 analysis

The EUR/USD pair mostly runs around the 1.21 mark, at times threatening to fall below this level and break the upward trend. So far, buyers of the euro have managed to regain only a third of the growth from the last momentum since last November. There are also no confirmatory signals about a possible breakdown of the growth momentum.

Exchange Rates 26.01.2021 analysis

Now the focus is on the Federal Reserve meeting. Before the results of the meeting are announced, traders are unlikely to be active or change their strategy. Markets may be concerned about the lack of support from the Fed and the lack of stimulus from the White House. Whether this is true or not will be judged by their reaction to the decision and the comments of the regulator's officials.

No changes are expected in the policy of the US central bank. The publication of new economic forecasts is also not planned. Fed Chairman Jerome Powell is likely to draw attention to inflation. However, there will be no surprises here. Powell and other high-ranking financiers have in fact already spoken out on this topic in recent days. They said that there is no need to worry too much about the upcoming price increase. If inflation rises above the 2% target this year, it probably won't stay high for long.

Meanwhile, the current levels of the euro against the dollar may be interesting to buy. This can be explained by the fact that in the interbank market in London and New York, the rates on dollar loans are still significantly lower than the Fed rate. Bankers still have a surplus of dollar liquidity.

But do not forget that the Fed will announce its verdict on monetary policy on Wednesday, so investors are unlikely to rush to open positions.

As for the pandemic, it seems that stabilization is being planned in this direction. In the last two days, the number of infected people has not exceeded 460,000 after the peak in mid-January. In addition, a large-scale vaccination is expected to begin in two months. This, coupled with the warm weather will help to smooth out the curve in the incidence of coronavirus. This is good news for financial markets, but the dollar, as a funding currency, will not like such news.

The resignation of the Italian government could affect the euro's position. However, so far, the state securities of Italy and the euro show a very restrained reaction to this scenario. Market players believe a new election is unlikely.

Natalya Andreeva,
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