🔼 US100 gains ahead of FOMC decision

📆 FOMC rate decision due at 7:00 pm GMT today

Monetary policy announcement from US central bank is a key market event of the day, and the week as well. FOMC is scheduled to announce rate decision at 7:00 pm GMT and markets are not expecting central bank to change level of rates. However, the meeting will be watched closely as rate decision will be accompanied by release of new economic projections, and those may help set expectations for Fed policy in 2024.

What are expectations for today?

Expectations for today's FOMC rate decision are clear - no change in the level of rates is expected. None out of around 100 economists surveyed by Bloomberg expects any other outcome than keeping Fed funds rate unchanged in the 5.25-5.50% range. Money markets are also clear on what is expected - Fed funds futures price in less than 2% chance of US central bank delivering a 25 basis point rate hike today.

Source: Bloomberg Finance LP

Inflation slows but remains above target

Federal Reserve has a dual-mandate - it is responsible for keeping price stable and achieving the maximum sustainable employment. Attention as of late has been mostly on the former, given a post-pandemic and war-related inflation spike. While inflation is decelerating and core CPI dropped to 4% YoY, it is still above Fed's 2% inflation target. Having said that, focus in new set of forecasts, that will be released along with the rate decision today, will be on inflation forecasts. Projections from September hinted that core PCE inflation will drop to 2% target in 2026. Investors are eager to see whether recent inflation developments will push Fed to expect return to target in 2025 (2.3% inflation for 2025 in September's forecast).

Source: BLS, Macrobond, XTB Research

Attention on dot-plot

As the chance for a rate change is a very small, attention today will be primarily on the new set of economic projections, especially the famous dot-plot. Let us recall that back in September, median expectation among Fed members was for rates to finish 2024 in the 5.00 - 5.25% range, or 25 basis points below the current level. It seems highly unlikely that such a forecast will be maintained for 2024 at today's meeting. Having said that, the question for today is how many cuts Fed members see next year.

Money markets currently price in more than 100 basis points of easing for 2024. However, Fed members hinted that markets pricing for rate cut is too aggressive. Should we see a new dot-plot contradict those comments and point to 4 rate cuts next year, markets may experience a strong dovish reaction - USD dropping while gold and equities rally. On the other hand, dot-plot showing 1 or 2 cuts next year could be seen as a disappointment and may trigger a hawkish reaction in the markets.

Source: Bloomberg Finance LP

A look at the charts

EURUSD halted pullback at the support zone ranging between 1.0735 mark and 38.2% retracement of the downward move launched in the mid-July 2023. Bulls attempted to launch a recovery move, but the advance was halted at the 200-session moving average (purple line). Technical outlook is somewhat bearish given a recent break below the lower limit of the market geometry. The aforementioned 200-session moving average acted as the ceiling for the pair in recent days, while the 50-session moving average (green line) acted as a floor. Today's FOMC meeting may provide fuel for a breakout from this technical range.

Source: xStation5

Upward move on Nasdaq-100 futures (US100) was resumed, following a retest of the 15,750 pts area. Index gained around-4% over the past five sessions and is trading at the highest level since the beginning of 2022. A record close can be found slightly over 1% above current market price while intraday all-time highs are around 2.5% above current price. Should new FOMC projections point to a 3 or more rate cuts in 2024, US100 may catch a bid and look towards a test of the 16,600 pts resistance zone, marked with previous record highs.

Source: xStation5

GOLD dropped over 7% off the intraday all-time high reached at the beginning of the previous week. Declines have been halted at the $1,980 per ounce support zone, at least for now. Recent pullback has been driven primarily by USD strengthening and if Fed fails to deliver onto dovish expectations today, the drop may deepen further. A near-term support in case of a break below $1,980 mark can be found at the 200-session moving average (purple line), which currently runs in the $1,955 per ounce area.

Source: xStation5