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Naturally, the focus of the attention today will be a meeting of the Federal Committee on Open Market Operations. But in order to understand what exactly will happen today, you need to figure out what happened in the last two days. The fact is that as soon as the American session opened, the single European currency confidently went up. The reason for this unexpected movement is the actions of the Federal Reserve System, which for the first time since 2008 entered the REPO market. The regulator was forced to enter the market after the interbank repo rates jumped from 2.5% to 10.0% on Monday, as the market lacked liquidity. Thus, the Federal Reserve System began to extinguish the fire in the most beloved way - to fill it with money, and poured into the market 53.2 billion dollars. This allowed to reduce repo rates to 4.0%. Realizing that this is not enough, and there is still a clear shortage of short-term liquidity in the market, the Federal Reserve System announced that it will give out repos for another $ 75.0 billion on Wednesday. Such unprecedented generosity of the regulator was the reason for the weakening dollar.

Exchange Rates 18.09.2019 analysis

It is clear that the actions of the Federal Reserve System are not the solution to the problem, but are only patching holes. Therefore, Jerome Powell and his team urgently need to look for ways to restore liquidity in the financial markets, otherwise this could lead to a sharp increase in the cost of borrowing both for the real sector of the economy and for consumers. It is noteworthy that all this is happening ahead of the meeting of the Federal Committee for Open Market Operations, and this situation, in fact, leaves the regulator no choice but to lower the refinancing rate from 2.25% to 2.00%. This will be an additional factor to weaken the dollar.

Federal Reserve Refinancing Rate:

Exchange Rates 18.09.2019 analysis

However, even lowering the refinancing rate is not a solution to the problem, as it is not able to radically change the situation on the market. After all, reducing the cost of borrowing is not yet a guarantee that lenders are ready to issue loans. In fact, the level of the refinancing rate, in this case, is not a significant factor. Moreover, an increase in the cost of short-term borrowing raises the target level for federal funds, and in many respects indicates that the Federal Reserve should keep the refinancing rate unchanged. Yes, and macroeconomic statistics, as well as the words of Jerome Powell himself indicate that the decision to lower the refinancing rate is rather not advisable. So do not think that everything is predetermined. There is a possibility that the Federal Reserve will not follow the panic investors 'plans and leave it as it is, periodically entering the repo market, adding additional liquidity to the market. In this case, not even panic dollar growth is possible.

Exchange Rates 18.09.2019 analysis

The EUR / USD pair once again felt a foothold in the area of the psychological level of 1.1000, where there was a slight slowdown followed by a reversal of the quote. Thus, the price rebound in this case amounted to more than 70 points, and this one returns the quote to the starting point of the movement on Monday. Considering everything that happens in general terms, we see a distinct multidirectionality in the current phase of correction, where the periodic ceiling is 1.1080 / 1.1115.

It is likely to assume that on the eve of such an important event as the FOMC meetings, we may be delayed for a while, and then we should look at what decision will be made regarding the bid, as our trading decision will depend on it.

Concretizing all of the above into trading signals:

  • We consider long positions in case of a decrease in the rate, where the prospect of the move may be in the direction of 1.1170-1.1180
  • We consider short positions in the case of maintaining a rate where the prospect of the movement may be in the direction of 1.1000 -1.0927.

From the point of view of a comprehensive indicator analysis, we see that the indicators, due to the recent price jump, turned upside down. Minute intervals reflect an attempt to recover, tending to decrease.

Exchange Rates 18.09.2019 analysis

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Dean Leo,
Analytical expert
InstaForex Group © 2007-2019
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