January 27, 2021 Virtual FOMC Press Conference. Image source: Federalreserve, flickr.com
The Federal Open Market Committee (FOMC) of the Federal Reserve met late last night for its highly anticipated January gathering. As expected, the Committee refrained from changing the near-negative Federal Funds Rate, which remains at 0.25 per cent.
Also inlined with our preliminary forecasts, the Committee did not scale up its quantitative easing programs due to slightly improved inflationary performance in December. Nevertheless, headline inflation remains way below FED's symmetric 2 per cent target level, which is why the Committee remains committed to preserving its accommodative monetary policy stance until its longer-term price stability goals are met.
U.S. Inflation Rate. Image source: TradingEconomics.com
In the post-decision statement, FED Chairman Jerome Powell and his colleagues expounded upon their views on the required level of involvement of the Federal Reserve in cushioning the coronavirus fallout and fostering economic recovery:
" […] the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals."
The Committee did not touch upon the recent change of pace in Washington, nor did it provide any preliminary assessments of the vaccination process so far. It was merely acknowledged that the pandemic continues to pose the most significant threat to global economic activity, which is why the rate of recovery continues to be uncertain and uneven.
Overall, the FOMC did not stray too far away from its established course of action, which is why yesterday's meeting did not result in any major surprises. Consequently, the markets did not react very violently to the news.
There was no major upsurge in demand for low-risk securities immediately before the meeting took place, while stocks, too, remained relatively unfazed by the MP statement.
The dollar was not strengthened considerably by FOMC's decision because FED's rate of purchases remains virtually unchanged, which means that U.S. yields will continue to be massively subdued in the near term.
Even still, the greenback is still attempting to gain ground against the shaken euro. As can be seen on the 2H chart below, the EURUSD pair briefly tested the 1.20600 major support earlier today, which is demonstrative of the robust bearish pressure currently driving the pair's price action.
Most indicators, including the MACD, suggest that the price action will attempt to form a major breakdown below this significant support level at least one more time.
EURUSD 2H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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