Gearing up for the Fed’s Decision: Size Matters
EUR/USD Bounces at Support, Challenges 15-Month High
The prospect of a super-sized rate cut by the Fed has weakened the US Dollar overall and sent it to a 9-month low against the Yen. The US Dollar Index (DXY), which measures the greenback’s performance against a basket of major currencies has dropped to 100.86, down from 101.81 last Thursday.
The dollar backtracked against the Euro as well, allowing the pair to climb to 1.1104 after a perfect bounce at 1.1000.
The markets are leaning towards a larger, 50-bps rate cut and according to the CME FedWatch tool currently, there’s a 59% chance for such a cut. The rest of 41% is reserved for a 25 bps cut and at the time of writing, there’s a zero percent chance the rate stays the same.
Economic Calendar Highlights
The German ZEW Economic Sentiment will be released Tuesday at 9:00 am GMT, followed at 12:30 pm GMT by the U.S Core Retail Sales and Retail Sales. There’s a big change expected for the headline figure, as forecasts see retail sales values changing -0.2% from the previous 1.0%.
The main attraction of the week will be the FOMC Meeting scheduled for Wednesday at 6:00 pm GMT. The rate announcement will be accompanied by the FOMC Economic Projections and the FOMC Statement. Half an hour later, at 6:30 pm GMT, Fed Chair Powell will hold the usual press conference. It will have an extra impact on the greenback if we get any hints about the pace or timing of future rate cuts.
The Bank of England and the Bank of Japan will also announce their rates on Thursday and Friday, respectively. Although no change is expected, the events may still create volatility.
The last notable event of the week is s speech delivered by ECB President Lagarde scheduled for Friday at 3:00 pm GMT.
Technical Outlook – EUR/USD
The Euro has the upper hand on the US Dollar and it looks like the pair is headed towards the resistance at 1.1120. If this immediate hurdle is surpassed, the bulls will probably challenge the top at 1.1200 but a lot will depend on the U.S. rate cut decision and any potential forward guidance that will be offered.
The RSI is bouncing off of its 50 level, showing signs of an uptrend and it is not even nearly overbought, so it favors a continuation of the bullish bias.
If the dollar strengthens after the rate announcement and press conference, we will likely see a battle for the 50-day Moving Average and another encounter with 1.1000. Traders should approach the markets carefully, at least until more light is shed by the Fed regarding the rate path.
