CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

👁‍🗨 What to expect from the Fed?

12:09 15 September 2020

The US Federal Reserve has a massive impact on the markets. Indeed, the US central bank could be the key driver behind an impressive post-pandemic rally in equities. The Fed was vocal again in August when president Powell redefined inflation target during the Jackson Hole symposium. How will it affect FOMC decision this week?

Economic background

Various measures of the economic activity have improved in recent months but employment remains well below the pre-pandemic levels and inflation is still below 2%, offering the Fed a good reason to remain super-accommodative. However, the last 2 months brought the highest combined rise in core (ex-fuels and food) inflation since early 90’s, reversing the covid slump. That reduces the need for more action but it also means that Fed will want to underscore its patience with higher inflation.  

Core inflation picked up, reducing a need for more action. Source: Bloomberg

Statement changes

During the Jackson Hole speech Powell said the Fed would change the way it treats the inflation goal allowing inflation to run above 2% for some time before taking action. We should expect this change to be reflected in the statement. The market does not expect inflation to rise above 2% anytime soon so that means 0% rates for a long time.

Expect these parts of the statement to be changed at the September meeting. Source: federalreserve.gov, XTB Research

Market reaction

These statement changes are now priced in and to impress the markets, the Fed would need to do more – possibly suggesting some further easing. With the Fed and easing it’s “never say never” but this is unlikely for now – the FOMC may prefer to preserve these last bullets in case of economic deterioration.

From the EURUSD perspective it is important to remember about extremely high speculative positioning – a disappointment could easily trigger a dynamic correction.

EURUSD is in the upwards trend but speculative positioning remains extreme – a clear risk for the bulls. Source: xStation5

US100 managed to defend the pivotal support line at 10930 points twice and created a bullish double bottom pattern. Having said that it’s worth recall the June meeting when markets tumbled despite very dovish FOMC message.

This content has been created by X-Trade Brokers Dom Maklerski S.A. This service is provided by X-Trade Brokers Dom Maklerski S.A. (X-Trade Brokers Brokerage House joint-stock company), with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. X-Trade Brokers Dom Maklerski S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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