Preview of the Fed Meeting. Part 2

[Ben Graham]

So what decisions will the Federal Reserve make, and what rhetoric will it use? In my opinion, the decision has already been made – a 25-basis-point cut to the key interest rate. It is likely that the market has already priced in this decision, but it should be understood that new policy easing may be the last for some time. Why? Because the Fed continues to act in the dark. The latest data on the labor market and unemployment pertains to September. We have not seen data for October or November. These will only be released next week. Therefore, no one knows whether the "cooling" of the American labor market has stopped. I wouldn't count on the ADP report too much, as it is fairly inaccurate and doesn't account for all sectors that employ hired workers.

Thus, I believe the Fed will lower interest rates, and Jerome Powell will utter his sacramental phrase that decisions will be made solely on economic data, which have been absent for two months. Based on this, the market will make any rate predictions not after the Fed meeting, but after the November labor market, inflation, and unemployment data.

If the labor market recovers, the Fed will pause for an indefinite period, which should, in theory, support the U.S. dollar. However, we remember that the last two rounds of Fed easing increased demand for the dollar. Therefore, if the market learns of a pause, demand for the U.S. currency may very well start to... decrease. This may seem illogical, but one must adapt to market realities instead of clinging to one's opinion because it is written that way in textbooks on economic analysis.

Also, on Wednesday evening, the "dot-plot" charts will be released, which reflect the mood of the Fed governors and their expectations for the coming years. If expectations turn more "dovish," that would be bad news for the dollar. Essentially, the "dot-plot" charts will be the most interesting aspect of Wednesday evening, as they reflect the FOMC committee's long-term expectations.

I believe that buyers have performed very poorly in recent weeks, so sellers may begin to exert new pressure. However, it should be remembered that at this point, we can only speculate. What decision the Fed will make (in the complete absence of economic information), what the mood of the "dot-plot" charts will show, and what Jerome Powell will communicate after the meeting can only be guessed. I wouldn't advise anyone to try reading tea leaves.

Wave Picture for EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument continues to build an upward segment of the trend. In recent months, the market has paused, but the policies of Donald Trump and the Fed remain significant factors in the future decline of the U.S. currency. The targets of the current trend segment may reach the 25-figure mark. However, the last upward segment of the trend has once again taken on a corrective appearance. Therefore, a minimum downward wave of this segment may now begin, while the maximum may form a new downward corrective wave set.

Wave Picture for GBP/USD:

The wave picture for the GBP/USD instrument has changed. We continue to deal with an upward, impulsive segment of the trend, but its internal wave structure has become complicated. The downward corrective structure a-b-c-d-e in C in 4 appears quite complete. If this is indeed the case, I expect the main trend segment to resume its formation, with initial targets around the 38 and 40 levels. However, wave 4 itself may take on a five-wave form.

In the short term, I expected wave 3 or c to form, with targets around 1.3280 and 1.3360, corresponding to the 76.4% and 61.8% Fibonacci levels. These targets have been reached. Wave 3 or c may continue its development, but the current wave set is likely corrective once again. Therefore, a decline at the beginning of next week is also possible, and an attempt to break the 1.3360 level was unsuccessful.

Main Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to trade, often leading to changes.
2. If there is no confidence in what is happening in the market, it is better not to enter it.
3. There is no absolute certainty in market direction, nor can there ever be. Do not forget about protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.

The material has been provided by InstaForex Company - www.instaforex.com