After US Fed Chief Powell testified before the House Financial Services Panel yesterday, the question is not if the central bank will cut interest rates but by how much? Powell will give his testimony before the Senate Banking Committee today where he is expected to echo his dovish tone. While markets have priced in a 25 basis point interest rate cut during this month’s FOMC meeting, the extend of Powell’s worries warrant more to come after that. Some analysts argue that yesterday’s testimony opened the way for a 50 basis point reduction in interest rates. Overall, markets have priced in a cut of 75 basis points in interest rates by the end of 2019.
It appears the the US Fed is shifting from data dependence to risk management as the data has pointed to a weaker global economy than expected. Powell, appointed by President Trump, has been under fire from the White House for increasing interest rates as Trump is waging a trade war with China and slapping trading partners with tariffs. This has added to the global risk for a recession. Trump has been unhappy as Powell refused to cut interest rates and some will view his willingness to cut now as a sign that the central bank is indeed not independent as often claimed in public commentary.
While Powell has not rued out a 50 basis point cut, the FOMC’s biggest dove St. Louis Fed President James Bullard stated “I would argue for a 25 basis point cut at the next meeting. I don’t like to prejudge the meeting too much, but if the meeting were today or tomorrow that is what I would be recommending.” Bullard was the lone dissident during last month’s FOMC meeting as he voted for an interest rate cut. Powell was asked if the June jobs report has altered his point of view to which he responded “The straight answer to your question is no. The bottom line for me is that the uncertainties around global growth and trade continue to weigh on the outlook while inflation remains muted.”
After his testimony, the US Dollar came under selling pressure as forex trading strategies adjusted to the fact that interest rates are coming down. How will the US Dollar perform moving forward? Open your PaxForex Trading Account and join our fast growing community of profitable forex traders!
Minutes from last month FOMC meeting read “Many judged additional monetary policy accommodation would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook.” It also pointed out that “Some participants suggested that although they now judged that the appropriate path of the federal funds rate would follow a flatter trajectory than they had previously assumed, there was not yet a strong case for a rate cut.” While a 50 basis point interest rate cut is unlikely as it would cause mass panic, a 25 basis interest rate cut is all but guaranteed. By how much will the US Fed cut interest rates? Here are three forex trades to raise you balance as the US central bank lowers interest rates.
Forex Profit Set-Up #1; Buy EURUSD - D1 Time-Frame
While the Eurozone faces a range of economic issues of its own, the most liquid currency pair will remain in demand with forex traders. In that case, the current uptrend in price action is expected to continue. This currency pair was able to recover to the upside on the back of a short-covering rally and the build-up in bullish momentum is now anticipated to take the EURUSD back into its primary descending resistance level which is currently located just below its next horizontal resistance level. Forex traders are advised to buy any dips in the EURUSD down to its primary ascending support level.
The CCI has already completed a breakout from extreme oversold conditions and bullish momentum is now likely to carry this technical indicator above the 0 mark from where more upside is favored. Download your PaxForex MT4 Trading Platform now and earn more pips pre trade with the help of our expert analysts!
Forex Profit Set-Up #2; Sell USDJPY - W1 Time-Frame
Demand for safe haven assets like the Japanese Yen is likely to increase as the global economic slowdown inches closer to a recession. The USDJPY reversed course after touching its horizontal resistance level and after Powell’s testimony. Price action is now anticipated to accelerate to the downside and complete a breakdown below its primary ascending support level. This will clear the path for the USDJPY to extend its correction until it can challenge the lower band of its next horizontal support area. Selling any rallies in this currency pair into its secondary descending resistance level remains the favored trading approach.
The CCI moved out of extreme oversold territory, but bullish momentum is fading and this momentum indicator is expected to reverse to the downside which favors an extension of the sell-off. Subscribe to the PaxForex Daily Fundamental Analysis and follow our expert analysts to over 500 pips in monthly profits!
Forex Profit Set-Up #3; Sell USDMXN - MN Time-Frame
The US Dollar has lost its upward momentum against the Mexican Peso as price action was rejected by its horizontal resistance area. Following a breakdown below it, a sideways trend emerged which took the USDMXN below its secondary ascending support level and turning it into resistance. The primary descending resistance level is adding additional bearish pressures on this currency pair which is now favored to accelerate to the downside, below its primary ascending support level and into its next horizontal support level. Forex traders are recommended to sell any rallies in the USDMXN into the lower band of its horizontal resistance area.
The CCI has extended its reversal from inside extreme overbought conditions below the 0 level for a bearish momentum crossover. This technical indicator is on track to resume its downtrend. Follow the PaxForex Daily Forex Technical Analysis and copy the recommended trades of our expert analysts into your own portfolio!