• To conduct his trade war, Trump needs lower rates.
  • The dot-plot and the word 'patient' to define the dollar's direction.

That concerns about a global economic slowdown had made policymakers worldwide take a dovish shift is no news. Neither is that the financial market has already priced in at least one rate cut in the US for this year. In fact, the US Federal Reserve took the lead into shifting toward a more conservative approach to rate hikes, later followed by most of its counterparts.

Just this Tuesday, ECB's head, Mario Draghi, announced that if inflation doesn't pick up the central bank will use its tools, included rate cuts, to stimulate the economy. Powell & Co. are expected to pave the way for a cut and to announce it this Wednesday when they end their two-day meeting. There is a “but” in the way. US data have been resilient, particularly that related to consumption, which means that policymakers could decide to remain 'patient' for a bit longer. Given the current scenario, that will be as close as “hawkish” they could get these days.

The US economy is not giving signs of the economic slowdown, but inflation is indeed below desired, and also true that the yield curve has been dangerously close to inverting. Furthermore, and despite Powell keeps proclaiming the independence of the central bank, US President Trump pressures all he can for lower rates, as he considers that higher rates in the US give an advantage to its trading counterparts. Just this Tuesday, Trump tweeted: “Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.” To conduct his trade war, Trump needs lower rates.

The big question is whether Fed officials consider its time to do it, or if they can wait to gather more data before dropping the rate-cut bomb. By the end of last week, odds for a rate cut next July were of about 80%, and a clear sign toward such a move will be Fed officials dropping 'patient' from the statement. If that's not the case, the greenback could get a nice boost, although Wall Street will probably suffer. Market's eyes will also be on the dot-plot and any change there.

Anyway, if the US Federal Reserve decides to maintain the status quo this month, that doesn't take a rate cut out of the table. After the dust settles, the market will start pricing in a probable cut for September.

EUR/USD technical outlook, levels to watch

The EUR/USD pair trades at its lowest in over two weeks heading into the event, undermined by Draghi's comments about European policymakers' determination to act with more stimulus if needed. The pair has breached a significant support, now resistance at 1.1200, as the level stands for the 61.8% retracement of the latest daily advance. An intermediate support ahead of the event comes at the 1.1150/60 price zone, followed by the yearly low at 1.1106. Quite unlikely, but if this last gives up, the 1.1000 figure will become a more likely target. Resistances come at the mentioned Fibonacci level at 1.1200, followed by the 1.1240/60 price zone. Above this last, the short-term scenario will turn bullish for EUR/USD.

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD remains depressed but off daily lows

The EUR/USD pair is recovering from a daily low of 1.1216, although holding in negative territory for the day. US preliminary Michigan Consumer Sentiment Index improved by less-than-anticipated in July, coming in at 98.4 vs. the 98.5 expected.

EUR/USD News

GBP/USD trading marginally lower daily basis but above 1.2500

The Pound gave back some of its Thursday’s gain on dollar’s relief. The GBP/USD pair broke a daily descendant trend line coming from June’s high and holds above it, leaving little room for sellers to act.

GBP/USD News

USD/JPY: bears pausing, still in control

Japanese National Inflation steady at 0.7%YoY in June. US Michigan Consumer Sentiment Index expected at 98.5 in July. USD/JPY corrective advance falling short of signaling an interim bottom in place.

USD/JPY News

Something has spooked the Fed

We wish we knew what it is. Wild talk of the US joining Japan and Europe with zero or negative return on the 10-year is or should be very frightening.

Read more

Gold consolidates around $ 1440, eyes US data for fresh direction

Gold (futures on Comex) extends its side-trend around the 1440 mark into the mid-European session, having stalled its retreat from 2019 highs of 1454 near 1437 region.

Gold News

Majors

Cryptocurrencies

Signatures