The FED meeting is history. Moderate impact on EUR / USD

Fed, Fed and after Fed. September Fed meeting has gone down in history. Looking at the EUR / USD fluctuations, it has changed little on the currency market. The dollar in the first reaction to the decisions of the US monetary authorities has strengthened, and today it is losing value, but the entire movement is taking place in the range of fluctuations from recent days. Does this mean that we have a small rain from a large cloud? Not necessarily.

FED meeting

Let's start from the beginning. Yesterday, the Fed (or more precisely the Federal Committee for Open Market), in line with market expectations, reduced interest rates by 25 basis points (bp), bringing the range of fluctuations in the federal funds rate to the level of 1,75-2,00 percent.

It was the second reduction after July this year. And maybe not the last. At least, these are market forecasts. The next cut is expected in December. This scenario is assumed by economists surveyed by Reuters. The forward market goes even further forward in its forecasts and prices an additional two reductions in 2020 year.

The Fed members themselves are more moderate. The projection of interest rate changes published yesterday shows that they currently assume stabilization of interest rates in the US at the current level both until the end of 2019 and in 2020, and then their increase in 2021. This corresponds to the Fed's forecasts of economic growth, lower forecasts of the unemployment rate and only slightly stands in line with the reduced inflation forecasts in the years of 2019 and 2020.

From this picture, supplemented by yesterday's comments by Jerome Powell, it can be concluded that the Fed leaves itself an open gate to cut at one of the next meetings, if necessary. And this will depend on the incoming data. Thus, now macroeconomic reports from the US are coming back to the fore, as all subsequent reports will be analyzed in the context of the next Fed decision.

Impact on EUR / USD

Strengthening the dollar against the euro in the first reaction to the Fed is not surprising. This one was not as pigeon as the market expected. All in all, no surprise. On the other hand, the market realized that it is able to force further cuts. That is why the dollar is losing value. To a large extent also because at the same time expectations for future decisions are strongly cemented ECB. The chances of further loosening are small.

Analysis of the signals recently sent by the ECB and the Fed does not allow to conclude that EUR / USD is just a moment before a stronger move in either direction. In this case, lateral movement is much more likely.

The future of EUR / USD looks a bit less vague if you look at it through the prism of technical analysis. Here is the September double turn from around 1,0926, which each time resulted in a candle with a long bottom shadow, significantly reduces the chances of falling below 1,09. On the other hand, the 1,1075-1,1085 resistance zone, created among others by almost 3-monthly bear market, it stops the demand side. It's just that breaking it can be a matter of days. Then the road would open to the next resistance zone 1,1250-1,1260. And this scenario should be considered as a baseline for EUR / USD.

Chart EUR / USD, D1 interval. Source: MetaTrader 4 Tickmill UK