FOMC Preview: there's nothing the Fed can do to save the greenback

The Fed is undergoing its monetary policy meeting and while no rate hike is expected, it could be considered one of the most relevant of the year. Firstly, it's one of those known as "live-meeting," the ones that include a press conference and a fresh dot-plot. Secondly, the US central bank is expected to announce it will start unwinding its $4.5 trillion balance sheet. Back in July, the Fed said that the central bank "begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated."

Reducing holdings of mostly mortgage and Treasury bonds, however, may not be the best financial move the Central Bank could do at this time, as the whole reason for QE was to support growth, and growth hasn't been shinning lately. Additionally, what could be the effect on credit and consumer lending if the Fed floods the market with bonds? That said, the most logical move would be to reduce it at the slowest pace possible, or even more, let them mature. If that's the case, the market will probably see it as dovish, and alongside with an on-hold rate decision, put the greenback under strong selling pressure.

Yet  Fed´s cautious stance amid sluggish inflation is not the only reason while the dollar can't lift its head. The Trump administration is also hurting the greenback, as after promising growth measures back in February, Republicans haven't been able to agree yet on the Obamacare reform bill at the time being, while focus continues in international relationships, and not for the good. Here and there, President Trump reminds us that he is ready to build the wall between the country and Mexico, and lately, we have a WWIII menace pretty much weekly.

Furthermore, Yellen's term as Fed's chair is about to end. And Gary Cohn´s name sounds loud as a possible replacement, Trump said that Yellen is definitely on the run for a second term because, according to his words, “I’d like to see rates stay low. She’s historically been a low-interest-rate person.”

What can then, the Fed do in this scenario to save the greenback? Well, almost nothing. Unless a surprise rate hike is announced, with doors opened for also a December hike, dollar possible gains won't be sustainable in time. The US administration has hinted that the tax reform will be discussed by the end of September, so a hawkish Fed, plus some positive news on the issue by the end of the month, could be the beginning of the end of dollar's decline, but that's the most it could be said at this point.

EUR/USD technical outlook, levels to watch      

For the EUR/USD pair, is not all about the greenback. As of lately, attempts to regain the 1.2000 level are being capped by headlines indicating that the ECB may delay any decision on trimming QE amid EUR's strength. There were no official  announcements, just comments from "people familiar with the matter." In its latest meeting, the ECB's head, Mario Draghi, surprised with the moderated tone ever offered from an Italian blooded, and while it was not enough to put the common currency under pressure, he surely achieved its main goal that is, preventing the EUR from rallying further.

Anyway, and from a technical point of view, the pair is within a consolidative phase ever since late August, overall maintaining the bullish long-term stance, as in the daily chart, the price remains well above an ascendant trend line coming from early April, currently around 1.1820, whilst the price remains far above bullish 100 and 200 SMAs, and around the 20 SMA, which losses upward strength. Technical indicators in the same chart hold within positive territory but lack directional strength.

The pair has an immediate resistance in the 1.2030/60 region, with gains beyond the level exposing firstly the 1.2101 level, January 2015 high. Beyond it, the rally can extend short-term towards 1.2140/60, while a daily close above 1.2100 will open doors for an extension towards 1.2300 in the following days.

1.1910 is the immediate support, ahead of the critical 1.1820, where the pair has the mentioned trend line and a relevant weekly low from August. Further slides below this level will leave the pair poised for a deeper downward corrective movement, down to August 17th low at 1.1661.