The Fed’s rate decision is looming large on Wednesday, September 18. After last week’s slightly strong US core CPI and PPI inflation data, the market is still wondering whether the Fed will deliver a 25 or 50 basis point rate cut in the week ahead. Judging by price action in the FX and rates markets, investors were certainly looking for a dovish rate decision last week. This could be in the form of a surprise 50 basis point cut, or 25 bps cut with a strong hint of at least one 50 bps cut in the remaining 2 meetings later this year. We also heard from the ECB last week. President Christine Lagarde and her colleagues decided to go ahead with the expected 25 basis point rate cut. It is quite evident that President Christine Lagarde is content with maintaining communication calm and predictable at this point, providing minimal guidance. During the press conference, she simply acknowledged that the course for policy rates is "fairly obvious" (implying further cuts) but her strong emphasis on data dependency was the key takeaway point. Ahead of this week’s central bank bonanza, when the Bank of England and Bank of Japan will also decide on their own monetary policies, the EUR/USD forecast remains modestly bullish.
What will the Fed decide next week?
Despite hotter inflation data last week, the focus has shifted toward economic growth and the slowing jobs market, which has prompted the Fed’s dovish pivot. With equal chances of a 25 or 50-bps cut, the US dollar has weakened, and gold has hit new highs. Investors will likely hold steady until Wednesday’s announcement, which could either confirm a smaller cut or hint at larger easing down the line, keeping the dollar under bearish pressure.
EUR/USD technical analysis
This may mean the EUR/USD will hold inside what looks like a bull flag pattern until the FOMC day.
Source: TradingView.com
On the EUR/USD chart, short-term support is seen around 1.1050 to 1.1000 area and resistance around 1.1100 to 1.1140. A closing break above the resistance trend of the bull flag would be a bullish scenario that could target the April high of 1.1200.
EUR/USD forecast: Impact of US elections
Beyond rates, US elections are also influencing the dollar’s outlook. Kamala Harris, seen as less favourable for the greenback, has gained traction in polls after the live debate with Trump. If she continues to perform well, the dollar could remain weak, making it more reliant on economic data for support in the weeks ahead. A win for Trump, on the other hand, would likely be negative for the EUR/USD forecast.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
