The USD index gained foothold around the 92.50 mark, halting the two-day sell-off ahead of the Fed event. Overall, FX and equities stay range-bound suggesting market prefer to take wait-and-see stance before the major Fed updates. However, it's quite possible that the Fed will prefer to take a timeout on major policy news till the Jackson Hole conference in August, keeping an eye on the spread of the delta strain, which has recently begun to add uncertainty in economic forecasts. Nevertheless, in my opinion, the balance of risks for the dollar is shifted towards weakening, since strong buy-the-dip forces we saw last week and possible extension of the Fed's soft stance may support the hunt for yield for the rest of the summer.

In the first half of the week, investors were assessing the possibility that the selling shock wave that began in the Chinese stock market will spreads to other markets. The Shanghai Composite blue-chip index lost more than 7% in four trading sessions:

The avalanche of sales began with fears that the CCP would tighten regulation the fast-growing sectors of technology, private education and real estate. The investment ratings of many large companies have plummeted, the capitalisation losses of some firms have reached 45%. Given the restrictions on capital mobility in mainland China, the “fire” in the market remained local and had little impact on European and American markets.

As for today's Fed meeting, it is very likely that it could be a boring event. Powell recently said that the factors of increased inflation are not sustainable, therefore it is not justified to rush to change something in the policy or prepare investors for changes. This rhetoric followed the June inflation report (which significantly beat the forecast) and if the inflation report was powerless to change Powell's views, then the rest can be ignored. Recently, some well-known centrists in the ranks of the Fed, such as James Bullard and Rafael Bostic, have taken a very hawkish position and today's meeting will show whether they gained any supporters or not.

An interesting technical situation is emerging on the dollar index. Since the end of June, the price has formed a rising wedge, which is often a reversal formation. In addition, the price could not hold out after the breakthrough of the medium-term resistance line, in which the index has been located since the middle of last year, which may indicate its falsity: