Earlier this month, Powell made it clear that the Federal Open Market Committee (FOMC) remains focused on threats to the labor market. However, the delayed inflation report released last week turned out weaker than expected, which will likely restrain the inflation hawks within the Fed for now. Labor market data continue to play an increasingly important role in the debate, and given that many officials are satisfied with inflation expectations and the current level of price pressures, the issue of a more aggressive rate cut may appear on the agenda. This would allow Powell to shift the focus toward employment and steer the Fed back to a neutral policy stance.
The central bank's rate decision will be announced on Wednesday, followed by Powell's press conference. It is worth noting that the committee will not release new economic projections or rate forecasts at this meeting. For that reason, all attention will be focused on Powell's remarks. His comments will set the market direction for the coming weeks. Sharp statements or evasive answers could trigger unpredictable volatility, so traders are preparing for various scenarios. Particular attention will be paid to any signals regarding the Fed's future strategy for combating inflation and supporting the labor market.
Futures indicate that investors consider a quarter-point rate cut today virtually inevitable. However, the high probability of a cut does not mean that policymakers are unified in their outlook on future rates. A significant minority, while acknowledging risks to the labor market, continues to express concern about inflation. It also remains unclear whether the committee will announce the end of quantitative tightening (QT). As a result, the committee may prove to be even more divided than in September, when nine members supported no more than one additional cut for the year.
Against this backdrop, many expect Powell to refrain from making clear forecasts about upcoming meetings. The lack of official economic data due to the ongoing government shutdown will only reinforce his cautious stance.
Technical Picture: EUR/USD
Currently, buyers need to reclaim the 1.1645 level. Only that would allow them to aim for a test of 1.1668. From there, they could attempt to reach 1.1696, though doing so without support from major players would be quite difficult. The ultimate target is the 1.1725 high. If the instrument declines, I expect major buyers to become active near 1.1621. If no one shows up there, it would be better to wait for a renewal of the 1.1602 low or to open long positions from 1.1580.
Technical Picture: GBP/USD
For pound buyers, it's important to break through the nearest resistance at 1.3270. Only that would open the path toward 1.3310, though breaking above it will be quite challenging. The final target would be the 1.3340 level. If the pair falls, the bears will try to regain control at 1.3225. A successful breakout below this range would deal a serious blow to the bulls' positions and push GBP/USD down to the 1.3180 low, with prospects of reaching 1.3140.
