Flat and complete apathy – this is how you can describe today's trading on the foreign exchange market. Key pairs show low price activity, perhaps with the exception of the pound-dollar pair. But it is very risky to trade this pair now, as incoming news about Brexit prospects seems contradictory. Optimistic signals alternate with pessimistic estimates, and the British currency is forced to respond to each attack in the information space. However, despite the increased volatility, the pound ends the trading day almost at the same level where it started. All the other pairs were literally marking time today, trading in an extremely narrow price range.
The euro-dollar pair is no exception. Starting the day at 1.1783, the pair passed a small circle around this mark, and still "landed" at 1.1780 at the end of the day . The price fell to the daily low of 1.1764 and updated the high at 1.1808. But in the end, neither buyers or sellers of EUR/USD were able to turn the situation in their favor. Even Federal Reserve Chairman Jerome Powell, who spoke at an online conference today, could not support the bulls or bears. First of all, his speech was quite balanced, and secondly, he had already voiced many theses earlier. Therefore, traders took into account what was said, but still did not risk opening large positions both in favor and against the dollar.
Perhaps the most important message voiced by Powell is that the Fed is not considering the option of introducing negative rates. If the economic recovery is "slower," rates will stay at the lower end of the range for longer, he said. This is quite an important signal to the markets, although traders reacted apathetically to what was said. It is worth recalling that the head of the Bank of England, who for a long time rejected the idea of reducing the rate to zero, is currently preparing the ground for this step. Some experts assumed that Powell would hypothetically allow such a scenario – at least in order to reduce the exchange rate of the US currency.
But Powell did not play these verbal games and completely ruled out this scenario. The weak reaction of traders to this fact is explained by the psychology of the market. The fact is that the probability of a Fed rate cut in the negative area was quite small until today, so another confirmation of this fact did not impress investors. As an opposite example, we can cite today's meeting of the Reserve Bank of Australia, which caused the AUD/USD pair to jump by almost 50 points in a few minutes. In this case, the market estimated the probability of a rate cut at 60%, so the RBA's wait-and-see position played in favor of the Australian dollar (although it lost all positions during the day, but this is a topic for a separate conversation).
In other words, Powell was unable to provide momentum to dollar pairs today. All his other theses were already familiar or obvious. For example, he stated that the pace of economic recovery has slowed down since the end of May. Powell also admitted that unemployed Americans, as well as representatives of small/medium-sized businesses, need additional help. This is also not news. As you know, the Democrats were able to push their bill in the House of Representatives last week in order to provide the American economy with additional assistance worth $2.2 trillion. But with a probability of 100% we can say that this document will never become law, since the Republicans oppose it, and the Democrats need the support of the Senate for its approval. And as you know, the Republicans control the majority in the Senate. That's it, the circle is closed.
However, representatives of the Democratic Party are in parallel negotiations with the White House to develop a new aid package. But, despite the optimistic announcements, "things are still there": the sides have not been able to find a compromise on this issue for the third month already.
Against the background of such uncertainty, the question arises: in which direction will the pendulum swing? In the direction of the dollar or the euro? This is a rather difficult question, but at the same time it is obvious that both the bulls and the bears are waiting for an information impulse. Such an impulse may be the minutes of the last Fed meeting, which will be published tomorrow, October 7.
Let me remind you that the dollar received temporary support following the results of the September meeting. This is due to a certain split in the Fed's camp, and above all, the statement of Robert Kaplan, who called on his colleagues to take a more flexible approach to the implementation of the new strategy. However, it is worth noting here that the split among the Fed members occurred in two directions. While Kaplan favored a more flexible approach, Neil Kashkari voiced the opposite idea. In his opinion, the rate should remain at zero until core inflation exceeds the target level "on a stable basis".
The minutes of this meeting published tomorrow will allow us to understand which side is supported by the other members of the central bank. If the opinions of most of them were hawkish, the dollar will strengthen throughout the market. Otherwise, buyers will get a reason to test the 1.1820 mark and the next resistance level of 1.1870 (the upper limit of the Kumo cloud on the daily chart). At the moment, the pair is stuck at a crossroads - both from a technical point of view and from the perspective of the foundation.
