News

Yesterday, ahead of the Fed decision, I wrote down all the things that were expected and all the potential surprises. Let’s see what we got…

STATEMENT

The changes in the statement were as expected. The Fed acknowledged the weakening in the labour market and maintained the lines about elevated inflation and uncertainty. So, the only surprise here was the voting split. In fact, the expectations were for two or three members voting for a 50 bps cut (Miran, Waller, Bowman), instead we got just one (Miran). This was slightly hawkish.

DOT PLOT

The changes in the dot plot, on the other hand, were definitely more hawkish than the market pricing. The market was pricing 68 bps of easing by year-end (three cuts in 2025) and cumulatively 148 bps of easing by the end of 2026 (three more cuts in 2026). The Fed, instead, matched the market pricing for 2025 but projected just one more cut in 2026.

Moreover, if we look at the details, the three cuts in 2025 were reached by a narrow majority. In fact, 10 members projected two or more rate cuts in 2025 and 9 projected one or less. We had 1 member projecting a rate hike (likely Hammack), 6 members projecting no cuts, 2 members projecting one cut, 9 members projecting two cuts and 1 member projecting six cuts (Miran, of course).

PRESS CONFERENCE

This is where it’s harder to get an objective view. If we take Powell’s Jackson Hole speech as the baseline, he didn’t really deviated much from that. He understandably placed more emphasis on the labour market given that we got two consecutive soft NFP reports but didn’t sound that much concerned about the recent data saying that it’s mostly because of immigration changes.

He also labelled the rate cut as a “risk management” action, which could mean that if the data were to strengthen in the next months, he might focus more on inflation and therefore we could get less than the two cuts projected yesterday.

Overall, I think he once again did a great job by balancing everything without leaning on either side, so that the economic data in the coming months will have the final say on their next moves.

SUMMARY

To sum up, I don’t think yesterday’s decision can be labelled as dovish at all. I’d say it was neutral to hawkish. It’s just the recent weakening in the labour market data that forced the Fed to move towards neutral as a “risk management” action. This means that if the data were to improve in the next months, the Fed would start to sound more hawkish.

This article was written by Giuseppe Dellamotta at investinglive.com.

• Eurostoxx +0.8%
• Germany DAX +1.0%
• France CAC 40 +0.6%
• UK FTSE +0.1%
• Spain IBEX +0.6%
• Italy FTSE MIB +0.8%

This comes as US futures are also looking buoyed for the time being, with S&P 500 futures seen up 0.5% currently. The Fed did not lean all too dovishly with their decision yesterday but overall, it had a little something for everyone. In the case of equities, it typically is the case that dip buyers will spin the narrative to their favour one way or another. And for now, it is the fact that the onus is on US data to prove the more dovish market pricing wrong for October and December.

This article was written by Justin Low at investinglive.com.

Fundamental
Overview

The USD yesterday weakened
across the board on the Fed’s decision but eventually erased all the losses and
increased the gains as traders digested all the information and realised it was
more hawkish compared to the market pricing.

In fact, the dot plot
showed that the FOMC projected two more rate cuts for 2025 by a narrow majority,
with the rest of officials expecting just one more or even none. Moreover, the
Fed projected just one cut in 2026 compared to three that the market was
pricing before the decision.

Fed Chair Powell then
labelled the rate cut as a “risk management” action given the weakening in the
labour market data. But overall, he sounded pretty neutral even though he understandably
placed more emphasis on the labour market given the two consecutive soft NFP
reports.

Looking forward, it’s going
to be all about the data. Strong data will likely trigger a hawkish repricing
in interest rates expectations and support the greenback. On the other hand,
weak data will likely continue to weigh on it.

On the JPY side, we haven’t
got meaningful changes in the fundamentals. The yen has been rallying mostly on
the back of the dovish expectations for the Fed. Tomorrow, we have the BoJ
decision where the central bank is expected to keep everything unchanged and
the focus will be on their forward guidance.

USDJPY
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDJPY eventually broke out of the range to the downside and dropped
into the major trendline around the 145.60 level. The buyers
stepped in with a defined risk below the trendline to position for a rally into
the 151.00 handle. The sellers, on the other hand, will want to see the price
breaking below the trendline to pile in for a drop into the 143.00 handle next.

USDJPY Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that we now have a minor downward trendline defining the bearish momentum. The
sellers are likely to lean on the trendline with a defined risk above it to position
for a drop into the major upward trendline targeting a breakout. The buyers, on
the other hand, will look for a break higher to increase the bullish bets into
the 151.00 handle next.

USDJPY Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, there’s
not much else we can add here but if we get a pullback from the downward trendline,
we can expect the buyers to step in around the minor support zone at 146.70 to position for a break above
the trendline, while the sellers will look for a break lower to increase the
bearish bets into the major upward trendline. The red lines define the average daily range for today.

Upcoming
Catalysts

Today we get the latest US Jobless Claims figures, while
tomorrow we conclude the week with the Japanese CPI and the BoJ policy
decision.

Watch the video below

This article was written by Giuseppe Dellamotta at investinglive.com.