EUR/USD – Fed likely to stick to the (slightly less) hawkish script

• All eyes on the Fed
• No forecasts so tone will be important
• EURUSD threatening to break lower ahead of the decision

The Fed meeting should be quite straightforward, with policymakers having come out in force to soothe market fears of another rate hike from the central bank, claiming recent moves in bond markets may have done some of the job for them.

This followed previous commentary that strongly hinted that another rate hike is likely, aligning with the dot plot from the September meeting, while warning that rates will stay high for a long time.

With no new forecasts due today, it’s all about the tone from policymakers and Chair Jerome Powell, and with bond yields still near their recent highs, I see little chance of another shift.

I expect the Fed Funds Rate will be left unchanged at 5.25-5.5% and the corresponding commentary will be almost a carbon copy of recent statements. This isn’t the time to tweak as the economic data hasn’t yet justified it either way, particularly to policymakers who are not going to pivot until they’re absolutely certain they’ve defeated inflation.

A bearish continuation pattern breakout?

EURUSD has been in consolidation over the last month but over the last 24 hours or so, there have been a couple of bearish signals that suggest a move to the downside may be on the cards.

EURUSD Daily

Source – OANDA on Trading View

The first signal was the failure to make a new high yesterday above the 24 October peak, which suggested the recent trend was weakening. And now it’s threatening the break below the rising channel it’s been trading within during that period.

This would be particularly significant when you consider the scale of the decline that preceded the recent consolidation, which contributes to it being a bearish flag setup. Of course, the consolidation itself has lasted for some time which arguably weakens the significance of the flag formation as a potential bearish indicator but a move below the bottom of the flag could still be very interesting.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.