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Forex Analysis:::2020-09-16

EUR/USD: Euro to move depending on the decision of the US Fed on interest rates

The Federal Reserve will announce its decision on interest rates today, finallyering the question: will the central bank resort to advanced indications or will answer leave everything as it is, declaring that it will adhere to the course of a super-soft monetary policy?


The earlier statements from the Fed does not signal any policy changes, but revealed instead new target levels for inflation. The central bank indicated that it plans to go beyond the average target level of 2.0%, however, Fed chairman Jerome Powell refrained from presenting the formula for determining precisely this "average level". Nonetheless, he reassured the markets that the Fed would not hesitate to fight against excessive inflation if it occurs, but at the moment, persistently weak inflation is a more serious threat to the economy.

Today though, the bank will finally announce its decision on interest rates, at which if Powell announces any changes, then the US dollar could significantly strengthen its position against the euro and other world currencies. Why, you ask? This is because such an approach will provide a clearer guideline for investors in the future. However, at the moment, seeing radically new approaches to calculations and analysis seems unlikely. Most probably, these changes will occur in future meetings and not today.

Thus, interest rates will remain at a zero-level through the end of 2022, which indicates a high stimulating approach. Until this period passes, inflation is expected to remain within the target level of 2.0%. However, the forecast last June assumes an unemployment of 9.3% in 2020, but the recent report has already indicated a decline to 8.4%. This confirms that recovery will be more active in the future, which could lead to revisions in monetary policy for the next years.

But, there is also a possibility that the Fed will take a wait-and-see attitude before dealing changes on the monetary policy. Given the current statistics in the US economy, it is quite unnecessary to apply new approaches right now, lest everything may become complicated because of over or understimulation. In addition, there remains a threat of the resurgence of coronavirus in the country.

Speaking of statistics on the US economy, one good report is the improving industrial production in the country, which rose by 0.4% in August. At the same time, activity in the manufacturing industry also grew by about 1%, while production in the mining industry fell by 2.5%. The utilization of production facilities increased to 71.4%.


Activity in the New York Fed also rose according to the latest report, growing to a huge 17 points, so much better than its forecast of only 7 points.

With regards to EUR/USD, the key level for today is 1.1855, around which the further direction of the pair depends. It is already clear that large players will wait for the announcement of the Fed before taking any position in the market, but the bullish trend will only continue if the quote breaks out of 1.1855. So, if the pair fails to rise after the Fed's statements, the bears will be able to bring the quote down to 1.1800, a breakout from which will drive the instrument to the lows at 1.1755 and 1.1710.

Eder Anderson
Analyst InstaForex
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