USD:
The Federal Reserve is widely expected to keep
interest rates unchanged. With no new projections or dot plot expected at this
meeting, changes in Fed Chair Warsh’s or statement’s language will be the main
focus.
Despite higher September inflation data strengthening
the case for further tightening, key Fed members have signalled little urgency
to deliver a back-to-back rate hike in October. A hawkish hold remains the base
case as the debate centres around the timing and extent of further tightening
rather than direction.
Warsh is expected to reiterate that monetary policy is
not sufficiently restrictive and that additional tightening is warranted. He’s
also seen reaffirming the commitment to price stability but cautioning against
overreacting to individual data points.
Markets are already pricing an 80% chance of a rate
hike in December, so the focus will be more on the 2027 outlook. Traders see
roughly two more rate hikes next year, with the first fully priced in move in
April.
A surprise rate hike would trigger strong risk-off
flows. The US dollar and Treasury yields might initially react positively to
the decision, but I think the reaction will be quickly faded as growth concerns
should intensify amid falling stock markets.
A largely neutral outcome that avoids signalling an
imminent rate hike could be taken as dovish and trigger a correction in the US dollar.
I would also expect the same reaction but with less magnitude in case the Fed
just delivers on the hawkish hold expectations, avoiding major surprises.
EUR:
On the EUR side, the ECB is
widely expected to keep rates unchanged, while maintaining its data-dependent,
meeting-by-meeting approach. Inflation accelerated to 3.8% in September, driven
by energy prices, while core inflation showed more limited increases.
Rising energy costs and the
risk of second-round inflation effects remain hawkish risks but increased growth
concerns and tighter credit conditions argue for caution. Markets will focus on
any signals about further tightening, with the December rate hike probability
standing around 68%.
France is likely to
dominate the press conference, with traders looking for clues on whether
widening sovereign spreads and fiscal uncertainty could prompt a more dovish
ECB stance or potential intervention through the Transmission Protection
Instrument (TPI). A hawkish surprise is unlikely in the current context.
The next key catalyst for
the euro should be the vote on France’s 2027 state budget which is scheduled
for November 3. This vote concerns the revenue section of the budget. The full
budget vote is scheduled for November 17.
The vote matters as a test
of the government’s ability to deliver fiscal consolidation. A smooth passage
would offer some relief and could give the euro a boost, while a rejection or
major concessions that weaken the deficit-reduction plan could put further
pressure on French bonds and the euro.
EURUSD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that EURUSDis approaching a key swing
level around 1.1067. If the price gets there, we can expect the buyers to step
in, with a defined risk below the level, to position for a correction into the
downward trendline around the 1.15 handle. The sellers, on the other hand, will
look for a break lower to increase the bearish bets into the 1.08 level next.
EURUSD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we
have a downward trendline defining the bearish momentum. If we get a pullback,
we can expect the sellers to lean on the trendline, with a defined risk above
it, to keep pushing into new lows. The buyers, on the other hand, will look for
a break higher to increase the bullish bets into new highs.
EURUSD TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the sellers will have a better risk to reward setup
around the trendline, while the buyers will look for the price to come into the
key swing level or a break above the trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we have the FOMC rate
decision. Tomorrow, have the ECB rate decision and we get the US GDP report,
the US PCE and the latest US Jobless Claims figures. On Friday, we conclude the
week with the Eurozone GDP and the US Employment Cost Index.
This article was written by Giuseppe Dellamotta at investinglive.com.