The Fed Bites Off a Big Chunk Of the Rate. Core PCE Looms
Doji Spotted at Resistance Level. Is the Uptrend Over?
The Fed finally took a significant step during last week’s FOMC Meeting, opting for a bold 50-bps cut after two years of stringent monetary policy, rather than the more conservative 25-bps. This suggests that the primary battle against high inflation is largely won, though some smaller skirmishes remain.
We’ll have to watch the effects of this 50-bps reduction on the U.S. economy, which was already showing signs of vitality prior to the rate loosening. With money now cheaper, we can expect an economic uptick. It seems the much-anticipated “soft landing” has been achieved, but the Fed will likely navigate a few more challenges before officially declaring success.
Some members of the FOMC have voiced their concern with the large cut. Federal Reserve Governor Michelle Bowman mentioned that she would have preferred a 25-bps cut because inflation is still above the target rate of 2.0%. The PCE Price Index release scheduled later this week will offer more clues about where the U.S. inflation is heading.
Economic Calendar Highlights
Monday is ‘PMI day’ with Purchasing Managers’ Indexes released in multiple parts of the world, starting with the French German, and U.K. Manufacturing and Services PMIs early in the morning. The same indicators but for the U.S. economy will be released later in the day, at 1:45 pm GMT.
The U.S. Consumer Confidence survey will be released Tuesday at 2:00 pm GMT. This survey is a leading indicator of economic health because a confident consumer tends to spend more, thus boosting retail sales.
The U.S. Final version of the GDP will come out Thursday at 12:30 pm GMT and will be followed at 1:20 pm GMT by a speech by Fed Chair Powell. However, the speech is prerecorded, so the audience will not ask any questions.
The main event of the week will probably be the Core PCE Price Index which is scheduled for release Friday at 12:30 pm GMT. This is known to be the Fed’s preferred inflation gauge but it is overshadowed by the CPI that’s released about 10 days earlier. The effects of last week’s rate cut will probably not be seen just yet but the release holds great importance going forward.
Technical Outlook – EUR/USD
After the Fed rate announcement, the greenback initially weakened and allowed EUR/USD to climb to a high of 1.1190. However, the dollar bulls managed to erase some of the losses and the pair finished the day at 1.1120.
Thursday was another mixed day, with the pair ranging between a high of 1.1180 and a low of 1.1070. The day closed at 1.1160, far away from both the high and the low. Friday’s candle was much slower, opening the day at 1.1161 and closing at 1.1160, with very small movements in between.
This means that now we have a Doji candle on the resistance at 1.1175 after a back-and-forth movement that failed to break the previous high. Essentially, if the pair does not break the resistance at 1.1175 and the top at 1.1200, we will likely see a bearish movement toward the 50-day Moving Average.
