The market is convinced that the Fed will raise interest rates eighth time in the cycle and the third this year at the meeting, which is scheduled for 26 September. Today's meeting will not bring change in policy parameters and would normally not be absolutely controversial. It would not wake up if it were not for the recent comments of President Trump, who criticized the growing cost of money in the economy.
The rates will remain in the range of 1.75 -2.0 percent. The probability of a raise at the August meeting does not exceed 2 percent. The message may be modified in a more hawkish direction under the influence of the strength of the economy in the second quarter (4.1% in annualized terms is the best result since 2014) and PCE Core reached 2.0% YoY. The global investors should not expect policymakers to emphasize that the unemployment rate has risen from 3.8% to 4.0% - faith in the strength of the labor market remains unwavering in FOMC. The Fed will maintain communication suggesting two increases: in September and December. Changes in the communication should, therefore, be modest and rather reflect the actual state and not be any indication for the future. Among other things, please do not expect the release of the statement to refer to the flattening of the yield curve.
To sum up: the FOMC meeting should not change the market view on the monetary policy outlook and the future interest rate path. This is why there is no reason to see in it the factor triggering the next wave of strengthening the USD. Positive communication tone will contrast with the dovish narrative of the European Central Bank, the Bank of Japan and probably also the Bank of England, and it is only in this context that USD will be beneficial, so traders should see it strengthen across the board.
Let's now take a look at the US Dollar Index technical picture at the H4 time frame. The market has bounced from the technical support at the level of 94.17 and currently is testing the golden trend line from below. The market conditions are neutral, confirmed both by stochastic and RSI indicator. The next technical resistance is seen at the level of 94.93, but for now, the global investors are waiting for the FOMC meeting conclusions. The larger time frame uptrend remains intact.
