FOMC rate decision at 7:00 pm BST is a key event of the day. As usual, the announcement will be followed by a press conference of Chairman Powell half an hour later. Rates and QE settings are expected to stay unchanged. However, as this will be a quarterly meeting, the US central bank will publish a new set of economic forecasts as well as the famous "dot-plot". According to Bloomberg consensus, there is an expectation that dots will show a first rate hike in 2023, compared to 2024 hinted at in the previous dot-plot. One issue that will be closely watched by market participants is how the Fed will address inflation spikes. Is Chairman Powell going to repeat that it is transitory? Or will he acknowledge that price growth is getting out of hand? Announcement and press conference are expected to boost volatility on stocks and US dollar.
Taking a look at the US dollar index (USDIDX), we can see that price climbed recently and tested the resistance zone at 90.450, marked with a 23.6% retracement of the drop started at the beginning of Q2 2021. A hawkish message from the Fed could help USDIDX break above this zone. In such a scenario, the next resistance to watch can be found at 38.2% retracement (91.035). On the other hand, should the Fed maintain a dovish tone (by for example not making major changes to dot-plot), USD may take a hit with the US dollar index pulling back. In such a scenario, the main support to watch is the lower limit of recent range (89.70).
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Source: xStation5
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