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Following yesterday's Federal Reserve meeting, the rate was cut by the expected 0.25%. However, neither FOMC members nor Jerome Powell himself showed a hawkish stance, which is why the U.S. Dollar Index strengthened by only 0.38% — a modest reaction for such an event. The dot plot indicated the intention to cut rates two more times before year-end. In his remarks, Powell even slightly downplayed the inflationary risks stemming from Trump's tariffs, while the Fed raised its PCE forecast for next year from 2.4% y/y to 2.6% y/y. Indirectly, these steps smooth out the tension in the confrontation with Trump. We allow for a scenario in which inflation picks up again before year-end, leading the Fed to refrain from cutting rates in December.
Is there market support for such a scenario? Yes, and it lies in the bond market's lack of reaction to the rate cut. Yields on most U.S. Treasuries actually rose. If the rise in yields turns into a sustained trend, the Fed's rhetoric could quickly become more hawkish. On September 26, PCE price data for August will be released, which may show an increase.
Yesterday's trading volume was the largest in September, though still significantly lower than on August 12 (CPI release), August 1 (Nonfarm Payrolls), and July 30 (previous Fed meeting). It seems market participants are not paying much attention to the dot plot this time.
On the daily chart, the price pierced the target range at the upper boundary of the price channel with its upper shadow. The Marlin oscillator slightly declined. The market now needs fresh data to reassess the current balance. A new consolidation range may form at 1.1724–1.1919, with the lower boundary set by the MACD line. We, along with the market, will wait a few days for the situation to clarify.
On the four-hour chart, the Marlin oscillator is close to shifting into negative territory. Overall, the euro is now likely to focus on finding support. The MACD lines of different scales around 1.1724/62 appear to be an appropriate area for this.
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