Image source: Tananuphong Kummaru © 123RF.com
In what looks like arguably the most action-packed week of the year, the most significant event is undoubtedly going to be the FED's monetary policy decision, which is scheduled to take place this Wednesday.
The general market forecasts project a likely reduction of the interest rate by the Federal Open Market Committee, as a response to other central banks’ recent easing of their respective monetary policies.
Currently, the federal funds rate is at 2.00 per cent, and the consensus expectations project a likely reduction by 25 basis points to 1.75 per cent. Such a course of action will provide more favourable conditions for stimulating inflationary growth.
At the present rate, inflation in the US remains close to, but below, the 2 per cent symmetric target-level, which is evocative of subdued price stability.
US Inflation Rate. Image source: TradingEconomics.com
The muted inflation is resulting from waning business confidence, which in turn is caused by the heightened trade uncertainty globally.
The prolongation of the impasse between the US and China’s trade negotiations is deterring investors’ spending. Consequently, the impeded business activity is also harming the price stability in the country.
US Business Confidence. Image source: TradingEconomics.com
On the other hand, however, the US labour market is currently performing exceptionally well, and it is leaning close to full employment.
Recent job gains and sizable wages growth could potentially discourage the FOMC from implementing any significant changes to the monetary policy at the present rate.
The Committee could decide to remain watchful by the end of the year as the fourth quarter is typically the busiest period of the year, heightened business activity-wise, and evaluate the near-term developments in the economy.
During the last monetary policy meeting on September, 2 out of the Committee's ten members - Esther L. George and Eric S. Rosengren – voted against the ultimate decision to cut the federal funds rate at that time.
This friction of opinions within the Committee could have possibly increased in the previous two months and turn into the most crucial aspect of FOMC’s Wednesday decision.
Meanwhile, the EURUSD opened this week’s trading session relatively quietly. The price of the pair is currently consolidating close to the 1.10906 support level, which is also the 38.2 per cent Fibonacci retracement level.
We expect the price to have already reached a dip in the recent correction that was initiated last week.
Given that the general market sentiment remains predominantly bullish, we expect the price to rebound from the support as mentioned above and continue trading higher by the end of the current week.
EURUSD 1D Chart. Image source: Trendsharks ©, created with TradingView.com
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