The biggest risk event of the day is the upcoming FOMC statement. The Federal Reserve will announce its monetary policy decision later today and the expectations are that the Fed is going to cut the interest rate by 25 basis points. This will be the second interest rate cut by the Fed during this year.


The Dollar Maintained Its Strength

Despite this, the dollar index is still trading strong today and it is up nearly 2.47 percent from its recent low of 95.84 (formed back in June). The dollar-yen pair is on track for its 8th-consecutive day of gains, up nearly 3.65 percent from its recent low of 104.46 (formed back in August).

Remember, this particular pair is of great interest among traders who like to speculate in terms of monetary policy. The strength in the dollar-yen pair confirms that traders have fully priced in a quarter point cut by the Fed. So, if the Fed only delivers this, 25 basis points interest rate cut, there would be hardly any element of surprise in the FX market.


Mixed Economic Data

Generally speaking, whenever there is an anticipation of interest rate cut, it usually drives the currency lower. However, in this new era of central banks, monetary policies aren't that simple. The U.S. economic data has given mixed signals to the Fed; consumer spending and retail sales growth, a true reflection of consumer sentiment, have soured. On the other hand, there are signs of life in the manufacturing activity and in labour market. Hence, the overall picture supports the Fed's decision of cutting interest rates.


The Reluctant Fed

The real question is if we are going to see another interest rate cut by the Fed in 2019 and this is where the majority of the focus is going to be among traders. The fact is that businesses are still optimistic and the reason I'm saying this his because we have seen a surge in workers' pay (according to Beige Book and also average earning for the month of August soared to 0.4% from July reading of 0.3%), and this is in the midst of trade war. This leads us to believe that Federal Reserve may be somewhat reluctant to pull the trigger again for another interest rate cut during 2019.


Unleashing The Twitter storm

The reluctancy on the Fed side brews another major problem- the narrative of Donald Trump. The current stance of the President of the United States is to make the interest rates more competitive among other central banks. Hence, no matter what The Federal Reserve does today in the meeting, they will be a well short of President Trump's expectations. The President wants the interest rate to be at zero or sub-zero.

To conclude, if the statement by the chairman of the Federal Reserve is more heavy with doubts for dovish measures, it would unleash a Twitter storm by the president. The reality is presidents tweet are powerful and traders do pay close attention to them. This means we may see an initial surge in the dollar index on the back of the Fed decision, but following the twitter storm by the president, the profit taking phenomena could be much quicker.

Risk warning for retail traders: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.7 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Risk warning for qualified professional traders: Derivative products are leveraged products and can result in losses that exceed initial deposits. Please ensure you fully understand the risks associated with a professional trading account. Tax laws depend on individual circumstances and may differ in a jurisdiction other than the UK. Tax law may differ in a jurisdiction other than the UK. TF Global Markets (UK) Limited is authorised and regulated by the Financial Conduct Authority, FRN 629628. Registered address: 2 Copthall Avenue, London EC2R 7DA. Company number: 09042646.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Forex Analysis

Editors’ Picks

EUR/USD pressured around 1.13 after jump in US jobs

EUR/USD is trading around 1.13, down after US Non-Farm Payrolls shocked with a leap of 2.5 million jobs in May, contrary to all projections. The greenback is gaining while stocks are falling, a correlation breakdown. ECB stimulus previously supported the euro.


GBP/USD retreats from highs

GBP/USD is trading below 1.27, off the highs. The pound is struggling after Chief EU Negotiator Barnier reported little progress in Brexit talks. Robust US jobs support the dollar.


XAU/USD retreats further to $1670, lowest in five weeks

Gold prices are falling sharply on Friday on the back of the US employment report that boosted equity markets and sent US yields to the upside. XAU/USD is losing more than $40 on Friday and recently bottomed at $1670/oz, the lowest intraday level since May 1.

Gold News

Institutional demand exceeds Bitcoins supply

Greyscale floods the market with fresh money to satisfy the demand of its clients. Investors, willing to pay a 29% surcharge for exposure to Bitcoin without suffering the legal and operational inconveniences. Market remains at risk on the verge of new bullish territory.

Read more

WTI rallies above $39 as focus shifts to OPEC+ meeting

Crude oil prices built on Thursday's modest gains and rose sharply on Friday boosted by the upbeat market mood optimism surrounding Saturday's OPEC+ meeting. 

Oil News

Forex Majors