Central Banks in Focus as Fed Navigates Shutdown
EUR/USD Stuck in a Range Ahead of Fed Announcement
U.S. inflation cooled down in September, according to the data that came out last week, albeit delayed due to the government shutdown. The CPI and Core CPI showed 0.3% and 0.2% increases, while the forecast saw them at 0.4% and 0.3%, respectively. This puts the Fed on track for another rate cut at the October 29 meeting.
The probability of a 25-bps cut sits at over 98% at the time of writing, according to the CME FedWatch tool. The next FOMC meeting will be in December, and currently there’s a 91% probability of another quarter-point cut.
The European Central Bank (ECB) is also scheduled to announce the interest rate this week, but no change is expected from the current 2.15%. The press conferences of the two heads of central banks, Powell and Lagarde, will follow their respective rate announcements. Given the U.S. government shutdown, the Fed is flying blind, so the Fed Chair will probably avoid strong guidance.
Even after the government shutdown ends, the gap in data collection means the reports will be “guestimates” rather than accurate data. Thus, the effects of the shutdown will probably linger even after the regular activity resumes.
Economic Calendar Highlights
The Federal Funds Rate will be announced on Wednesday at 6:00 pm GMT and will be followed half an hour later by the press conference held by Fed Chair Powell. Unless major surprises happen, the rate will be trimmed by 25 bps, but it will be interesting to see how Powell navigates the press conference, considering the lack of data.
The European Central Bank (ECB) will also announce the interest rate this week, on Thursday at 1:15 pm GMT. ECB President Christine Lagarde will hold the usual press conference at 1:45 pm GMT. The rate will most likely remain unchanged at 2.15% but the ECB data flow is not affected, which means that President Lagarde may provide clearer forward guidance.
The U.S. GDP is marked as a “Tentative” event on Thursday’s calendar, and the same goes for the U.S. PCE Price Index on Friday. Most likely, these reports will be delayed again, but if they are announced, volatility will increase, especially if the PCE comes out.
Technical Outlook – EUR/USD
The price was mostly flat for the second part of last week’s trading session. Friday, we saw the most activity when the U.S. inflation data came out, with the US Dollar weakening at first but erasing some of the losses by the end of the session.
The pair is trading above the support at 1.1600, but volatility is low. This will probably remain the status quo until Wednesday, when the U.S. interest rate will be announced. If the price remains above the 1.1600 support, the first target is the upper Bollinger Band. A break of 1.1600 would take the pair closer to the bearish trend line seen on the Daily chart below.
