EUR/USD – Fireworks expected from the final Fed meeting of the year

• Fed expected to leave interest rates unchanged
• Forecasts and dot plot key as markets price in four rate cuts next year
• EURUSD hovers around 50 Fib

The final Fed meeting of the year could also be the most eventful, with the central bank likely to acknowledge it’s done with tightening and even signal rate cuts next year. The question is how many, with markets now pricing in four starting in May.

The interest rate decision itself will almost certainly be straightforward – on hold – but with new economic forecasts, the dot plot, a statement, and the press conference to follow, there could be fireworks.

Any acknowledgment of rate cuts next year could be well received, although only one may get a cool response as that would suggest policymakers view it as coming very late in the year.

Traders may well shake on two as that would point to a third-quarter rate cut which would still not be nearly as aggressively as markets are positioned but it’s unlikely the Fed will pivot to the extent that it aligns with the very optimistic expectation currently priced in. That isn’t to say they won’t get there over the next few months.

EURUSD steadies ahead of the announcement

We’ve seen a decent correction in EURUSD over the last couple of weeks, with the pair giving up around half of the gains it achieved since early October.

EURUSD Daily

Source – OANDA

Resistance can be seen around 1.08 where the pair has recently run into trouble and the 200/233-day simple moving average band is providing a barrier to the upside. Below the 50% Fibonacci retracement level looks key, with the pair having rebounded strongly off there on Friday.

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