16.09.202014:02 Forex Analysis & Reviews: EUR / USD. Dollar's fate depends on Federal Reserve's verdict

The next meeting of the Federal Reserve is undoubtedly the main event of the current week. Many experts are now wondering what the greenback's reaction will be to the announcement of the Fed's monetary policy verdict.

The USD fell against its main competitors on Monday, as traders expect soft rhetoric from the Fed. On Tuesday, the dynamics of the dollar was ambiguous: it continued to decline against the yen but strengthened against the euro. The EUR / USD pair tested the 1.1900 mark twice, then turned down, reaching a local minimum around 1.1831.

One of the main drivers that allowed the greenback to partially recover its positions was the jump in the Empire Manufacturing index of manufacturing activity in New York. Analysts predicted the growth of the index from 3.7 to 6.9 points, but it rose to 17 points.

On Wednesday, the US dollar weakens moderately against major currencies in anticipation of the results of the September FOMC meeting. After a short rebound, the USD index again dipped below 93 points.

The decision of the Fed on monetary policy will be published at 15:00 UTC, followed by a press conference by Fed Chairman Jerome Powell.

Comments from the head of the Federal reserve can set trends in the currency market in the coming weeks or even months, having a direct impact on the fate of the dollar.

Investors are particularly interested in the question of where the Fed believes inflation is heading and what this means for rates in the new approach of the regulator to monetary policy.

Lack of details from the Fed could slightly strengthen the dollar, although such gains are likely to last in short term.

"The market as a whole knows that the Fed wants to be soft. However, the Central Bank's statements may not match what the market wants to hear in terms of providing details at this meeting, " said currency strategists at Bank of Singapore.

"The Fed may refrain from announcing important policy innovations until the next meeting. Recent comments from the FOMC suggest that they are far from consensus on strengthening the advance indication or significant changes in the asset purchase program, " Nomura said.

Market participants are also waiting for the updated quarterly forecasts of the US economic activity and interest rates from the Federal Reserve, which will now cover 2023.

On the eve of the September meeting of the Fed, investors were selling greenbacks, believing that the new strategy, providing for a softer approach of the Central Bank to monetary policy, would be reflected in concrete measures to support the US economy.

The Fed's cautious forecasts without a hint of additional stimulus may disappoint investors. In this case, the US dollar may strengthen against the Euro.

"In anticipation of the results of the Fed meeting, the EUR/USD pair is trading in the range of 1.1800-1.1900, and only after this will it be able to determine the direction of movement. Support is at 1.1750 and 1.1700. Resistance is located at 1.1900 and 1.2011 (2020 high)," OCBC Bank said.