Yesterday, the euro and the British pound rose sharply in response to comments by Fed Chair Jerome Powell. He suggested that the US central bank would likely maintain the current interest rate in the upcoming meeting. However, he did not rule out future rate hikes. While the euro has maintained its gains, the British pound is now nearing its weekly lows. We will discuss the technical analysis later.
These statements basically confirmed market expectations. It is anticipated that the Fed will skip raising rates for the second meeting in a row, which is set for November 1st. Powell also mentioned the recent increase in yields on long-term Treasury bonds. This could mean fewer rate hikes in the future. He emphasized the role of tighter financial conditions in predicting rate decisions in the coming months. "Given the uncertainties and risks and how far we have come, the committee is proceeding carefully," Powell said at the New York Economic Club. "We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks."
After Powell's remarks, the yield on two-year Treasury bonds dropped, while the yield on ten-year bonds remained around 5%.
An intriguing incident occurred at the beginning of Powell's speech. Protesters disrupted the event in New York, chanting "end the funding." They were escorted out before Powell returned.
Powell also commented on the current economic situation: "Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing could put further progress on inflation at risk and could warrant further tightening of monetary policy."
This implies that while the committee is willing to continue its pause in policy adjustments, it is not planning to stop tightening altogether. Recent data shows core inflation, excluding food and energy, slowed to just below 4% annually and a bit under 3% for the last three months. Meanwhile, other economic data revealed that US retail sales exceeded forecasts, industrial production increased in September, and employment in the non-agricultural sector grew by an average of 266,000 people over the last three months. This points to a strong labor market.
Regarding the technical picture of the EUR/USD, to keep control, buyers should stay above 1.0560, which will allow the price to return to 1.0585. Doing so could pave the way to 1.0610, but achieving this without support from major players will be quite challenging. The farthest target is located at 1.0640. If the pair declines, significant actions from major buyers could be seen around 1.0560. If no one steps in at that level, it might be wise to wait for a new low of 1.0530 or to consider going long from 1.0497.
Meanwhile, pressure on the pound remains the same. A rise could only be expected after gaining control over 1.2140. Regaining this range will bring back hope for a recovery towards 1.2170, after which a sharper uptick to around 1.2205 can be anticipated. If the pair falls, bears will attempt to take control of 1.2095. If they succeed, a breakout of this range will affect bulls' positions, pushing GBP/USD towards a low of 1.2070 with the potential to touch 1.2040.
