The minutes published on Wednesday evening after the July meeting of the Federal Open Market Committee (FOMC) in the United States revealed details of the Fed`s first interest rate cut in over a decade. This did not change the attitude of market participants towards further Fed`s actions.
From the minutes we can conclude that a clear slowdown in economic growth outside the US, possibly related to trade uncertainty, seem to be an important factor contributing to signs of a slowdown in economic activity also in the United States. Moreover, despite signals from the previous meeting, many threats and uncertainties are still at an elevated level, especially in relation to the global economy and international trade. Regarding inflation outlook, it was noted that inflation and core inflation were still below the 2 percent target.
In line with what the FX options market previously pointed out, market volatility during Wednesday's publication was very low. The EUR/USD exchange rate is not able to get out of the range of August 16 and has been in a sideways trend for several days. The volatility is around 40 pips.
EUR/USD H4 chart. Conotoxia trading platform
The EUR/USD showed a classic sideways trend limited by resistance in the area of 1.1107 and support at 1.1066. Resistance can also be set by a line drawn through the tops. In this situation, we are usually expected to breakout of the upper or lower barrier. Only then we can expect a larger trend.
Also we did not observe major changes on the interest rate market. This means that investors are almost 100 percent sure that the Fed will cut interest rates on 18 September by another quarter percentage point. What's more, by the end of 2019, the market expects another reduction to 1.50 percent. Therefore, investors expect a new cycle of reductions. The Federal Reserve rather calls it a cycle adjustment or “insurance cut”, as it is not known how the future of the trade war will unfold. Much also depends on other central banks and their interpretation of current events.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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