Fed Cuts Interest Rates by 0.5%

As we have frequently noted, a rate cut by the Federal Reserve seemed inevitable. Market participants debated whether the reduction would be 0.5% or 0.25%, and those predicting a 0.5% cut were proven correct.

According to Bloomberg, a narrow majority of 10 out of 19 committee members supported the 50-basis-point cut. Seven members favoured an additional 0.25% cut later this year, while two opposed any further reductions.

Fed Chair Jerome Powell stated that the 0.5% cut "reflects our growing confidence that we can maintain labour market strength amid moderate growth and a steady decline in inflation to 2%". He added that interest rates are unlikely to return to the ultra-low levels seen for many years before the pandemic.

Financial markets reacted with increased volatility, with stock indices rising and the dollar strengthening slightly against other currencies. However, it is still too early to determine the impact of the Fed's decision on current trends.

Technical analysis of the EUR/USD chart shows that:

→ The ATR indicator reveals that the Fed's decision led to a volatility spike, though it was smaller than the panic-induced drop in the Japanese stock market on 5 August. It seems the markets were better prepared for yesterday’s news.

→ Following the announcement, the price approached the late August high near the psychological level of 1.120 but did not exceed it. The volatility spike also tested the 13 September low around 1.107.

→ As of this morning, the EUR/USD rate is near the median line of the blue uptrend channel, constructed using linear regression, and equidistant from the extremes set during the volatility spike.

This suggests that the market is in a relatively balanced position. Market participants may need to better understand the implications of the Fed's decision. Their revised assessments, reflected in trading decisions, will provide more insight into the prevailing trends.

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