Despite yesterday's growth, the euro/dollar pair continues to trade in flat, without leaving the border of the 13th figure. However, the results of today can affect the tone of trading and "push out" the price beyond the multi-day range. In Tuesday's economic calendar, it is full of events that will take place mainly during the American session.
The central event of the day is a speech by Jerome Powell in front of the congressmen, where he will announce the semi-annual report. This is a very important event, which takes place only twice a year. It is worth noting that this report was postponed several times due to the protracted shutdown but today, the Fed chairman will still go to Capitol Hill to take part in the meeting of the US Congress. The head of the Fed will communicate with the American deputies for two days to discuss the economic prospects of the country and the prospects of monetary policy.
In addition to the report itself, the head of the Fed will answer the questions posed before the two specialized committees. Here, it is worth paying attention to several aspects in the context of the recently published minutes of the January Fed meeting. Let me remind you that this document was rather "dovish" since, after its release, investors reduced the likelihood of a rate hike this year. This is not surprising given the statements of the members of the regulator saying that the rate should be raised only if inflationary figures exceed basic forecasts. Simultaneously with this conclusion, the Fed has stated that the price pressure in the country is weakening. Hence, the core inflation will be below the target two percent level for a "long time". In general, the dynamics of key indicators suggest that Core CPI will fluctuate in the area of current levels with no hint of strong growth. In turn, this means that the regulator will not change the parameters of monetary policy in the near future.
But the question of "how long is the Fed ready to take a pause?" -is open. Thus, Jerome Powell may outline temporary guidelines today. Currency strategists have different opinions on this. According to some experts, the regulator will wait until at least March 2020. According to other analysts, the Fed will still decide on one rate increase in December of this year, if inflation stays at least at current levels. There are more radical scenarios, for example, some economists assume a reduction of the interest rate by 25 basis points and such a scenario does not look very fantastic, given the similar rhetoric of individual members of the Fed, particularly, Raphael Bostic and James Bullard.
This is the reason why Jerome Powell's performance today is so important. I doubt that he will allow the rate to decrease (even in a veiled form).In this case, he will cause severe turbulence in the markets and the dollar will sharply fall in price throughout the market. Nevertheless, he can make it clear that the monetary tightening cycle has already been completed. The rate has reached its neutral level and the Fed will continue to wait. In this case, the probability of a rate hike this year will drop to zero and although this scenario has already been taken into account in varying degrees at current prices, its implementation will undoubtedly put pressure on the American currency.
Jerome Powell will also probably touch on another burning issue, which concerns the reduction of assets on the Fed's balance sheet. Two weeks ago, Lael Brainard, a member of the Board of Governors of the Federal Reserve, stated that this process should be stopped already this year. In her opinion, she said, "the regulator needs a substantial buffer in order to avoid volatility". Brainard's comments provoked volatility among dollar pairs as the market finally heard a clear position on this issue. If today Powell gives a similar opinion, which is very likely to happen, then the dollar will again be under a certain pressure.
In addition to the speech of the Fed, it is also necessary for today to pay attention to the publication of the indicator of consumer confidence in the United States. Last month, this figure fell to 120 points, which was the lowest value since July 2017. Today, experts predict its recovery to 124 points. If their expectations are not met, the EUR/USD pair will receive another reason to test the 14th figure.
Thus, it will not be easy for dollar bulls today. Powell is unlikely to change its rhetoric radically, and macroeconomic statistics can only aggravate the general fundamental background for the greenback. In this context, the first priority of EUR/USD buyers is to break through the resistance level of 1.1395 which is the lower limit of the Kumo cloud on the daily chart and gain a foothold in the 14th figure area. The support level of the price will be 1.1301, which is the Tenkan-sen line on a similar timeframe.
