The Fed decision and updated forecasts are due on Wednesday
TD Research discusses its expectations for this week's FOMC policy meeting.
"We don't expect specific inflation-outcome-based forward guidance in the FOMC statement yet. Officials have been suggesting that such guidance is likely soon, but that they want a bit more time before settling on details. That raises the potential for disappointment in markets, but we expect there will still be plenty of dovishness, through the incorporation of AIT in the forward guidance-without specificity-the wording on QE, the tone on the economy, the dot plot, and the press conference," TD notes.
"With the Fed already having formalized a shift to an AIT framework, we do not think there is much that the Fed can do at this meeting to surprise or influence FX markets. And, with the ECB having already downplayed comments about EUR strength, we think there isn't much that the Fed can do to firm up the USD either.
All together, we are inclined to see the USD trade with a reluctant or at best, consolidative tone ahead of the Fed decision. Dips in EURUSD towards 1.1750 should find firm demand, while we are inclined to see 1.1865 and 1.1970 to be the main 'gravitational pull' for the pair," TD adds.
