17.03.202115:18 Forex Analysis & Reviews: Outlook for EUR/USD. Any comment made by Powell may become market driver

On Wednesday, the US dollar showed tepid activity against its major rivals.

The US dollar index consolidated near the level of 91.9 points. The euro/dollar pair is hovering near 1.1900.

Investors are waiting for the Fed's decision on the monetary policy

The regulator will announce its decision at 18.00 Greenwich Time. After that, Fed's Governor Jerome Powell will hold a press conference, which could be rather difficult for him.

Jerome Powell will have to keep balance saying that the US economy is growing and trying not to frighten investors by a possible rise in the cost of borrowings.

"The markets are going to be tuned in to every word. If he says nothing, it will move markets. If he says a lot it will move markets," Rick Rieder, BlackRock's CIO for global fixed income, said.

According to the expert, this meeting could become remarkable due to possible swings in the currency, bonds, and stock markets.

At the same time, experts at Goldman Sachs suppose that this FOMC meeting may determine the US dollar trend for the next several months.

The regulator will have to answer three main questions:

1. How did forecasts for inflation and economic growth change?

2. Will the regulator increase the key interest rate in 2022?

3. Does it consider the current surge in inflation a short-lived phenomenon? Is a rise in yields on treasury bonds insignificant?

Analysts polled by Bloomberg expect that the US Fed will upwardly revise forecasts for the GDP growth in 2021 to 5.8%. The regulator may also increase estimates of inflation and keep the unemployment predictions unchanged.

"We think it is likely that the FOMC economic forecasts will acknowledge the improved growth picture this year, and some transitory inflationary pressures as well, but will continue to show a long road toward conditions consistent with maximum employment that would put sustained pressure on inflation," Morgan Stanley economist Ellen Zentner said.

She also added that a more dovish than expected Fed's policy could lead to a fall in the US dollar in the near future.

"The Federal Reserve to maintain status quo, the US yields continue giving support to the greenback. The reflation provides benefits to mining stocks. Gold, on the other hand, could continue feeling the pinch of rising sovereign yields," analysts said.

On Wednesday, the US dollar was trying to keep its recent gains. Notably, the currency was rising for two sessions in a row.

The greenback ignored the weak report on the US retail sales.

Thus, in February, the indicator dropped by 3%, whereas economists had expected a slide of 0.5%. At the same time, January's reading was upwardly revised to +7.6% from +5.3%.

Next week, the US citizens will begin to receive direct payments, as a part of the recently adopted stimulus package. That is why most market participants are waiting for a surge in retail sales in the second half of March and in April.

The US dollar is stable mainly due to a higher yield on the US 10-year bonds, which has already jumped to 1.67%.

Today, representatives of the FOMC may show concerns about the current jump in the yields on the US treasury bonds amid rising inflationary expectations.

During the last month, Jerome Powell and his colleagues were not paying the necessary attention to these factors.

If the regulator's position remains the same, the yield on the US treasury bonds will go on rising along with the inflationary expectation. This, in turn, may push the greenback higher.

However, if the Fed expresses concerns like the ECB, the US dollar may lose in value.

The euro/dollar pair is on a roller coaster ahead of the publication of the Fed's meeting results.

Even if Jerome Powell manages to keep the balance expressing concerns about unemployment and a possible rise in interest rates and showing happiness about the economic growth and positive forecasts for inflation rise, the euro is likely to remain weak.

The euro may drop to its 3.5-month low of $1.1835 logged last week. This could happen amid a scandal over the COVID-19 vaccine in Europe.

On Thursday, the European Medicines Agency (EMA) will announce its decision on the safety of AstraZeneca vaccine.

"Depending on the outcome, it could hurt the eurozone's business sentiment further and the euro could face fresh selling pressure on the low vaccination theme," chief strategists at Sumitomo Mitsui Bank said.

"EUR/USD is holding near its 200-day average at 1.1840/35. We maintain our view though that recent strength has been corrective and we look for a retest and the break below 1.1835 for a deeper fall to the 38.2% retracement of the 2020/2021 uptrend at 1.1695, with a major floor looked for here," experts at Credit Suisse pinpointed.

"Resistance at 1.1991/92 ideally continues to cap. Only back above 1.2113/21 would suggest the correction is over to reassert the broader uptrend," they added.