DXY: what to expect from the Fed meeting this week?


For today and for the first half of tomorrow's trading day against the dollar, the publication of important macro statistics in the economic calendar is not planned. However, this does not negate the possibility of a sharp short-term increase in volatility in the "thin" market. It is also possible that some investors will want to balance their portfolio ahead of the Fed meeting, which may also be accompanied by unexpected movements in the market and dollar quotes.

The Fed meeting will start tomorrow, and its decision on interest rates will be published on Wednesday at 18:00 (GMT). A press conference will begin in 30 minutes, during which Fed Chairman Powell will answer a series of media questions that could increase market volatility. Any unexpected statements by Powell on the Fed's monetary policy will cause an increase in volatility in dollar quotes and in the US stock market.

Investors want to hear Powell's opinion on the Fed's plans for this year, and his more hawkish stance on the Fed's monetary policy will be seen by market participants as a signal to open new long dollar positions.

In the meantime, market participants assess the success of the Fed's fight against high inflation, which continues to grow, despite the efforts of the Fed.

As follows from the data of the US Bureau of Labor Statistics, published in the middle of this month, inflation in the US jumped in June to the highest level in the last 40 years, amounting to 9.1% (year-on-year) against 8.6% in May and market expectations 8.8%.


Such a sharp increase in inflation, despite the actions of the Fed, increased the expectations of market participants regarding the more rapid tightening of the monetary policy of the American central bank, and as a result, the dollar strengthened strongly, well ahead of its main competitors in the foreign exchange market.


Despite the current weakening, the dollar continues to dominate the foreign exchange market. The breakdown of the local resistance level 109.00 will be a signal to increase long positions in DXY futures “with the prospect of growth towards multi-year highs of 121.29 and 129.05, reached, respectively, in June 2001 and November 1985” (we wrote about this in our previous reviews).

However, earlier signals for building up long positions on the DXY dollar index may come with a breakdown of the resistance levels of 107.50, 108.00, given the strong bullish momentum and the long-term uptrend of the DXY.