31.01.201800:06 Forex Analysis & Reviews: Trump or the Fed: the dollar needs support

At the beginning of this week, the US currency tried to regain its positions throughout the market. Optimistic comments by Donald Trump in Davos, the US Congress in the United States. Tomorrow another important event will take place: the Fed's January meeting. The Trump and the Fed can give the market the reverse messages, after which traders will face a difficult choice: to believe the promises made by the US president or to react to the cautious estimates of the American regulator.

However, not everything is simple. Trump's address to Congress and the first meeting of the Fed this year can not be assessed by "black and white" categories In Davos, the US president said he sees a "strong dollar", as the country will become "economically stronger". But he did not say how the American economy will "build muscle." But Congressmen can talk about the prospects of trade relations between America and the rest of the world.

China and South Korea have already criticized the United States, after the Americans introduced levies on the import of solar batteries and washing machines. In turn, the Chinese are awaiting a decision on the import of steel: The US Department of Commerce has already conducted an investigation into the impact of the existing import conditions on national security. Trump received this report on January 12 and now has to take an appropriate decision within three months.

In Davos, the US president noted that he does not intend to start a trade war, but only wants to conduct "fair trade". However, as practice shows, the American idea of "honesty" does not coincide with the interests of other countries, and above all it is about China. Here it is worth recalling that in early January, Bloomberg released information that the Chinese are planning to suspend purchases of US bonds for their gold and foreign exchange reserves. Literally the next day, official Beijing denied this information, but, nevertheless, the current situation is reminded of many of the levers of influence China has. And this is only one possible scenario.

That is why the aggressive notes of Trump in tomorrow's speech can be heard under the usual pressure.

On the contrary, the US Federal Reserve tomorrow can show "restrained optimism." The probability of an increase in the rate is at 70%, so the main task of the members of the American regulator is not to reduce this target. The last meeting for Janet Yellen should be held in an optimistic tone, but it is unlikely that the Fed will tighten its statement. Inflation is still a "weak link", so the regulator will probably keep a cautious. Also members of the Committee can pay attention to the unusually weak indicator of GDP growth in the country for the fourth quarter of last year (2.6% instead of the forecasted 3%).

In general, the tonality of the accompanying statement is unlikely to be very different from that of December. Therefore, the reaction to this event is likely to be limited. The market is now concerned primarily with the prospects for the US foreign trade policy, so if the January meeting of the Federal Reserve takes place within the expected scenario, the dollar can only react briefly to its results. Also, we must not forget that in a few days Yellen will leave her success to her successor - Jerome Powell. This factor will indirectly affect the market reaction.

Thus, the last day of January will be marked by two major events. In the first place. After all, US-China trade relations is not the only important issue: the fate of the NAFTA (the Free Trade Agreement between the United States, Canada and Mexico) is being decided, the complicated trade relations with the EU, as well as the problem of the US budget deficit, are on the agenda. Depending on the emphasis placed and the "aggressiveness" of the speech sounded, the dollar will either go cheaper or recover.

The Fed meeting on this background looks like a minor event, but if the market gets down, the US currency will be under strong pressure. At the same time, positive estimates are unlikely to significantly help the greenback, given the current probability of an increase in the rate at the spring meeting.

As you can see, today the dollar with great difficulty tried to restore its position. Just hours after the start of the European trading session, the EURUSD pair turned up, reacting to a sharp decline in the yield of 10-year US bonds, as well as to the release of data on the GDP of the eurozone, which was released in accordance with the forecast.

Technically, the pair continues to be within the northern trend. Ichimoku indicator Kinko Hyo still demonstrates a bullish "Line Parade" signal, and the price itself is located between the middle and top lines of the Bollinger Bands indicator. All this speaks about the priority of the upward direction. The main target of this movement is the high reached last week (1.2538). The support level is 1.2350, which is the Tenkan-sen line on the daily chart.