On Tuesday, markets focused entirely on the outcome of the Fed's monetary policy meeting. And although the regulator is not expected to change anything in the monetary exchange rate, investors are noticeably cautious, fearing some kind of "pitfalls".
Against the backdrop of a relentless fire of coronavirus infection in the country, the American economy, after some recovery in may and June, began to experience clear problems in July. In fact, we can talk, if not the second wave of the COVID-19 pandemic, then about the first one that did not end, which is confirmed by more and more victims of this infection, both in the camp of the sick and unfortunately the dead.
The fact that the economy is already stalling was demonstrated by the previously published economic statistics, which were again confirmed by the July consumer confidence index from CB, production activity from the Richmond Fed, presented on Tuesday.
So what should be expected from the Fed and why are investors so hesitant about their actions in the market, what scares them?
As we see it, the markets are not worried about the change in the monetary exchange rate from the current one to some other. Everything is stable here. Interest rates, including the key one with a range of 0.0% to 0.25%, incentive programs that were previously adopted and the like, will be left untouched. It seems to us that the markets are worried that the regulator headed by J. Powell, as well as his colleague S. Mnuchin, will lose the ability to manage the situation in the economy. This is the strangest thing when it is not clear what can be expected in the future, especially amid a virtual emergency in the country due to the coronavirus pandemic.
Investors will want to hear not just a comment from J. Powell regarding what is happening in the country's economy, but what he and his colleagues in the Central Bank will personally undertake in the event of an out of control.
We believe that if the speech of the head of the Federal Reserve is supportive, convincing that the regulator is not "sleeping" and is in control of the situation and is ready to take any necessary measures to stabilize the situation and support the national economy, then this will be perceived positively by the markets and may become a condition for returning optimistic sentiments, and in this case, the dollar will return to its decline in the currency market again.
Forecast of the day:
The EUR/USD pair found support at 1.1710. The final decision of the FRS is likely to put pressure on the dollar. In this case, the pair should be expected to resume its growth first to 1.1760, and then to 1.1815.
The AUD/USD pair is testing the level of 0.7170, breaking through which at the end of the Fed meeting will help the pair continue to rise to the level of 0.7200, and then to 0.7260.
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