Investors eye changes in the Federal Reserve's bond-buying scheme in its last decision of the year. Here are three scenarios as described by economists at TD Securities. The base case sees further downside risks for USD. This could send EUR/USD higher with a possible test of 1.2275 in view.
See – Federal Reserve Preview: Forecast from 11 major banks
Key quotes
“Hawkish (20%): No change to QE program, including forward guidance. Highlighting of strength in recovery to date and vaccines related optimism. Highlighting of strength of recovery to date and upside risks to 2021 from vaccines. In turn, no need now for making QE more accommodative. This could see a correction in EUR/USD back toward recent range lows around 1.2050. Beyond that, a more hawkish tint could see a pullback to test major support at 1.2010.”
Base Case (Dovish) (45%): New QE forward guidance and WAM extension. Tone on the economy balances positive implications of vaccines for medium/long term with near-term challenges as COVID cases surge. Balancing of ‘light at end of tunnel’ from vaccines with near-term ‘uncertainties.’ Highlighting of low inflation and likely need for policy to remain accommodative well after the economy gets a boost from vaccines. We could see EUR/USD squeeze up toward 1.2275. Other G10 pairs that aren’t encumbered by strong drivers of their own right now (GBP for example) could see similar moves.”
“Less Dovish (35%): New QE forward guidance, but no WAM extension. Highlighting of near-term downside risks, but not enough of a case yet for WAM extension. Emphasis on too-low inflation and threat to recovery from the latest COVID-19 wave. Highlighting of potential for WAM extension at a future date. EUR/USD at 1.2110.”
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. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD consolidates weekly gains above 1.1150
EUR/USD moves up and down in a narrow channel slightly above 1.1150 on Friday. In the absence of high-tier macroeconomic data releases, comments from central bank officials and the risk mood could drive the pair's action heading into the weekend.
GBP/USD stabilizes near 1.3300, looks to post strong weekly gains
GBP/USD trades modestly higher on the day near 1.3300, supported by the upbeat UK Retail Sales data for August. The pair remains on track to end the week, which featured Fed and BoE policy decisions, with strong gains.
Gold extends rally to new record-high above $2,610
Gold (XAU/USD) preserves its bullish momentum and trades at a new all-time high above $2,610 on Friday. Heightened expectations that global central banks will follow the Fed in easing policy and slashing rates lift XAU/USD.
Week ahead – SNB to cut again, RBA to stand pat, PCE inflation also on tap
SNB is expected to ease for third time; might cut by 50bps. RBA to hold rates but could turn less hawkish as CPI falls. After inaugural Fed cut, attention turns to PCE inflation.
Bank of Japan set to keep rates on hold after July’s hike shocked markets
The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.