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Tensions are growing towards the Fed decision on Wednesday. What does it mean for EUR/USD?

Here is their view, courtesy of eFXdata:

Danske Research discusses its expectations around the FOMC September policy decision on Wednesday.

“In line with everyone else,  we expect the Fed to raise the target range by 25bp to 2.00- 2.25% at next week’s meeting.  We do not expect it to be necessary for the Fed to send any new important signals to the markets.

We believe the most important parts of the statement will remain unchanged  and even if the sentence ‘monetary policy is accommodative’ is removed or changed, it should not matter much, in our view, as it would just reflect reality.  With respect to the dots, the Fed will most likely still signal another hike in December…,” Danske projects.

“With the Fed still keen to continue the process of moving rates back towards ‘neutral’,  it remains too early in our view for the FX market to price the Fed going on hold. This should help EUR/USD revisit the 1.15 area again during the course of the autumn.

But, as the ECB is set to signal a first hike coming up at a time where the Fed could be looking to go on hold, a EUR/USD uptick will start to materialize. Indeed, it is when easing stops – rather than when hikes occur – that currency appreciation is seen, and vice versa,” Danske argues.

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