Tomorrow, May 1, there will be a one-day meeting of the Federal Reserve on monetary policy. Investors consider it a landmark, as they believe that because of the results, the regulator may give a signal about the decision to soften monetary policy by lowering interest rates in the second half of this year.
Such predictions are based on the opinion that ambiguous signals about the state of the American economy, as well as its future prospects, may force the Fed to lower rates in order to avoid stalling the country into recession on the one hand and to stimulate demand for US assets on the other. Moreover, the state of the global events such as the difficult economic situation in Europe, the ongoing trade war with China and brewing with the EU increases the risks of a negative scenario relative to all of these. In addition, an important point is strong pressure from Donald Trump on the Central Bank, who believes that his presidential rating is completely dependent on the dynamics of the local stock market.
Yes, indeed such dependence is noted. The positive attitude towards the American leader coincides with the growing dynamics of stock indices and their fall lowers the rating. Markets noticed this and actually began to direct Trump’s mood and then the actions of the regulator, which was most pronounced at the end of last year and at the beginning of this.
If the Fed fails to preserve its independence and such a risk exists, then in a hidden form in the form of hints if not explicit it will signal about likely such plans at tomorrow’s meeting it will signal about likely such plans. If this happens, the local stock market will receive good support and the dollar will undoubtedly be under pressure, as the prospects for lowering central bank rates will negatively affect the attractiveness of the currency.
At the same time, if the Fed again makes it clear that it will not do anything in the expected future and decides to continue to monitor the development of events – whereby prolonging the state of uncertainty – it can hit the dollar and it will resume its local decline.
Forecast of the day:
The EUR/USD pair found resistance at 1.1190. If it is not overcome, there is a probability of a local price reduction to 1.1125.
The USD/CAD pair is trading in the middle of a short-term uptrend. If oil prices continue to be adjusted downward, there is a chance that the pair will continue to grow to 1.3600. In this case, it must be bought after rising above the level of 1.3500. At the same time, the resumption of growth in oil prices will support the Canadian currency and the pair after declining below 1.3455 may further fall to 1.3400 with the prospect of a decline to the lower limit of the trend already.