It’s decision day at the Federal Reserve. A quarter-point rate increase is widely expected, the first since 2018. The market’s focus will be on the Fed’s dot plot, and if the dot plot projects more than six interest hikes this year, it would be a hawkish signal, resulting in a stronger U.S. dollar.
However, this decision is tricky for Fed Chair Jerome Powell since FOMC members have expressed divergent views, especially against the background of uncertainties facing the global economy because Russia invaded Ukraine.
Having mischaracterized inflation as “transitory” until November, the Fed would now have to signal an aggressive rate hike cycle that would have to start with an increase of at least 50 bps today to regain some of its lost credibility.
However, being an aggressive hawk is not a straightforward approach as it risks sending the U.S. economy into recession. Furthermore, Jerome Powell downplayed to Congress the likelihood of a 50 bps hike today.
The other option and the more likely scenario today is “dovish tightening.” A 25 bps rate hike and conditional language about maximum policy flexibility on further rate hikes and the balance sheet.
Whatever the Fed will decide, traders, brace for heightened volatility around the decision and press conference.
EUR/USD – Potential Bear-Flag to Signal Further Losses Ahead?
We are bracing for another leg-down towards 1.07, provided that the EUR/USD remains below 1.1060 and breaks below 1.0920.
Bulls, in the short-term, will watch for prices above 1.1020 to buy euros towards 1.1060 and possibly even 1.11 but be warned, sellers may take the opportunity to jump in at higher price levels.
Our short-term EUR/USD trading ideas for today:
- Long at 1.1010
- Short at 1.0940 (SL 25, TP 100)
Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumptions of MaiMarFX traders. They are not meant to solicit or recommend buying or selling a specific financial instrument.