What to expect from the Fed on Wednesday?

Key points from the EUR / USD article:

  • Fed rates will remain unchanged until at least 2022
  • Fed’s dovish tone should keep dollar under pressure
  • L’EUR/USD could reach the upper limit of its ascending channel

Fed rates will remain unchanged until at least 2022

The US Federal Reserve committee is meeting on Tuesday and Wednesday to discuss monetary policy. No change is obviously expected, but market operators will still be very attentive to the Fed’s press release, to the new projections of the FOMC and Powell’s speech.

This will be the first press release on monetary policy and the first expectations since the change in monetary policy target in August. As a reminder, Jerome Powell announced that the central bank will now aim for an “average” inflation target of 2%, that is to say by letting inflation exceed this threshold for a certain time before considering an increase. key rates. For investors, this implies that the Fed will be more tolerant of inflation and that it will raise its rates later.

The famous “dot plot” should remain unchanged at 0% -0.25% until at least 2022, despite economic figures which should be revised upwards thanks to good economic surprises.

Dot plot Fed – Juin 2020 :

Anticipation of FOMC rates in June 2020

Fed’s dovish tone should keep dollar under pressure

The verbs in Jerome Powell’s press release and speech should be kept very dovish to reinforce the message that there is no reason for a rate hike, even if inflation temporarily spikes above 2%. , as long as the US economy has not regained full employment.

Jerome Powell is also expected to announce that additional fiscal stimulus will be needed to further stimulate demand.

Nothing new is therefore really expected except the slight upward revision of the FOMC’s economic forecasts. The tone of the press release and the press conference should remain very “dovish”, inclined to more support measures such as control of the yield curve or an increase in the quantitative easing program (QE).

Therefore, the dollar is expected to remain under pressure this week, increasing the likelihood of seeing theeuro return to the top of its channel around $ 1.20.

EUR / USD could reach the upper limit of its ascending channel

Graphic 4 hours from EUR /USD made on TradingView:

EUR / USD: What to expect from the Fed on Wednesday?

Technically, the outlook for EUR / USD is still bullish given that it managed to rebound off its ascending channel last week. The EUR / USD could in the short term reach the upper limit of its channel, or even the symbolic threshold at $ 1.20 during the next sessions.

Besides the Fed, the evolution of the EUR / USD will also depend on the macroeconomic indicators published throughout the week, starting with the American industrial production published this afternoon. US retail sales will then be published on Wednesday, building permits and housing starts on Thursday and the consumer confidence index by the University of Michigan on Friday.

Discover our long-term forecasts for other markets in our forecast guides.

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