EUR/USD ready to explode on the Fed – it could go both ways
- The Federal Reserve is set to determine EUR/USD next significant move.
- A rate cut is on the cards, but Chair Powell may balance it with optimism.
- Wednesday’s four-hour chart is painting a mixed picture.
The wait is almost over – after the ECB introduced stimulus and triggered volatility – now it’s the US Federal Reserve’s turn. The Fed is set to cut interest rates for the second time in a row, and the response mostly hinges on signals for the next moves.
The Washington-based institution will have responded to concerns about global growth, downbeat investment, and perhaps to a minor slowdown in hiring. On the other hand, trade tensions have dropped of late, consumption is robust, and even inflation has picked up lately.
Bond markets have reduced expectations for massive stimulus in recent weeks and many expect a “hawkish cut” – a standard 25 basis point rate cut but a signal that there is no need for further moves in October. However, that would be a repeat of July´s decision – which indicated no moves and will potentially result in one now. Will the Fed hold its fire and leave rates unchanged? In this scenario, the dollar could surge and plunge. However, that would be a substantial surprise, would shock Wall Street and also President Donald Trump.
The focus is on the Fed’s forecasts for future rate moves – known as the “dot plot” – and the press conference by Jerome Powell, Chair of the Federal Reserve. His confusing words in July triggered substantial moves. There are several moving parts to consider.
US and Chinese officials have continued expressing hopes for a resolution to the trade war. High-level officials from the world’s two largest economies are set to meet in October. However, the trade spat is already taking its toll. FedEx, one of the world’s largest couriers – and considered a bellwether of global growth – has slashed forecasts, blaming the trade wars.
In the old continent, François Villeroy de Galhau, a member of the , has also been talking of a slowdown but added that Europe is not experiencing a recession. His words echo the ECB’s line.
Overall, the decision is left, right, and center today.
EUR/USD Technical Analysis
EUR/USD is trading above the 50 and 100 Simple Moving Averages but below the 200 SMA. Momentum is negative, but only just. And finally, the Relative Strength Index is flat. Overall, the picture is mixed.
Some resistance awaits at 1.1110, which was the high point on Friday. Further up, resistance awaits at 1.1165, which capped the pair in mid-August. Next, we find 1.1230, that was a high point earlier last month, closely followed by 1.1250 and 1.1285.
Looking down, 1.1050 provided support in mid-August and may provide some support. 1.0990 was a low point earlier this week. IT is followed by the all-important double-bottom of 1.0926 – which is also the 2019 low.