What will the Fed do?
Markets await the Fed today
After a few weeks of rollercoaster moves and a lot of economic releases, all eyes are on the Federal Reserve decision today, which might have a notable impact on the market.
The FOMC is anticipated to maintain rates in the range of 5.25% to 5.5% during its September meeting.
Fed Fund Futures
For the time being, the Fed Fund Futures is pricing in less than a 1% chance for a possible surprise. In addition, November’s meeting probability might be lower than 30%, while December’s probability might remain below 50%. In short, markets might not be pricing in any rate hike until the end of the year.
Hawkishness is highly possible
Despite the recent slowdown in core inflation, which remains on the right track, the Federal Reserve might not close the door for a possible rate hike due to the resilience of the US economy. Therefore, the tone of the Federal Reserve will most probably be the key, in addition to the dot plot and the economic projection.
How long will rates stay higher?
Over the next few months, what matters the most is the shift in market expectations towards the first rate cut. This of course will depend on the upcoming economic releases not just inflation.
In the meantime, the market anticipates that the first rate cut might come as soon as June next year with a 54% chance, while March’s probability recently dropped to 21%.
What could be surprising?
It would be surprising if the Federal Reserve decided to be clear about the end of the rate hike cycle, despite the fact that the inflation data continues to confirm that inflation is on the right track.
Therefore, the Fed might signal that one more rate hike is still possible by December, but they might not go for it.
US Dollar position
The US Dollar posted 9 weeks of consecutive gains. This is the longest weekly gain since 2014. The main key resistance remains between 105.00 and 105.50.
At the same time, the technical indicators are heavily overbought on the daily chart, keeping the risk of buying the dollar much higher than risking a short position ahead of the Federal Reserve’s decision.
| S3 | S2 | S1 | Pivot | R1 | R2 | R3 |
| 104.27 | 104.66 | 104.90 | 105.05 | 105.29 | 105.44 | 105.83 |
Watch AUDUSD and NZDUSD
Currently, there are multiple FX pairs that developed a notable technical formation. In addition, the time and price method align with the technical formations.
AUDUSD declined by 460 pips within 46 trading days, and this relationship expired by the closing of yesterday’s trading as the pair closed the day above its time/price time. Such a close means that the downside retracement might be over, and the upside trend may have resumed, as long as it holds above 0.6330.
| S3 | S2 | S1 | Pivot | R1 | R2 | R3 |
| 0.6360 | 0.6406 | 0.6430 | 0.6452 | 0.6476 | 0.6498 | 0.6544 |
NZDUSD has the same scenario. The pair declined by 470 pips within 47 days. With yesterday’s close, such a relationship has expired as well, signaling the end of the downside retracement and that the upside trend might have resumed, as long as it continues to trade above 0.5850.
| S3 | S2 | S1 | Pivot | R1 | R2 | R3 |
| 0.5846 | 0.5888 | 0.5912 | 0.5930 | 0.5954 | 0.5972 | 0.6014 |
Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.
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