Trend Reversal On EUR/USD, But Fed To Signal December Rate Hike This Week

Fed to signal gradual rate hikes on Thursday
At next week’s FOMC meeting, the Fed is widely expected to keep its target range for the federal funds rate at an unchanged 2.00-2.25%. The statement is likely to reiterate the outlook for further gradual hikes and thus corroborate the outlook for a 25bp move in December

Rather than making any immediate policy changes, the Fed will likely use the meeting to discuss the size and composition its balance sheet should have after the normalization is completed. According to the minutes of the August 1 FOMC meeting, Fed Chair Jerome Powell suggested that such a discussion of operating frameworks would likely resume in the fall. Previously, the committee had said that it wanted the smallest balance sheet that is consistent with a good monetary policy. At some point, that general statement will need to be translated into a target size for excess reserves; we expect a ballpark range of USD 500 bn to USD 750 bn, compared to the current level of USD 1.7 tn and a maximum level of USD 2.7 tn, which was hit in 2014. With regard to the composition, the Fed has suggested before that it ultimately targets a Treasury-only balance sheet, which means that all MBS and agency debt holdings would be wound down. This is likely to be confirmed. A circumstance that is adding some urgency to the topic is the fact that the effective fed funds rate continues to push against the interest paid on excess reserves. Unless the situation changes by the December meeting, it seems likely that the Fed will once again raise the interest paid on excess reserves by less than the target range in order to push the effective fed funds rate back to the middle of the band.

Friday's jobs report much better than expected
U.S. nonfarm payrolls increased by 250k jobs in October as employment in the leisure and hospitality sector bounced back after being held down by Hurricane Florence, which drenched North and South Carolina in mid-September.

There were also big gains in construction, professional and business services payrolls, and manufacturing, where employment increased by the most in 10 months. The economy created 118k jobs in September.
The Labor Department's closely watched monthly employment report on Friday also showed the unemployment rate was steady at a 49-year low of 3.7% as 711k people entered the labor force, in a sign of confidence in the jobs market.

The market had forecast payrolls would increase by 190k jobs in October and the unemployment rate would be unchanged at 3.7%.

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Average hourly earnings rose five cents, or 0.2%, in October after advancing 0.3% in September. That boosted the annual increase in wages to 3.1%, the biggest gain since April 2009, from 2.8% in September.
Employers also increased hours for workers last month. The average workweek rose to 34.5 hours from 34.4 hours in September.

The chart of the most traded currency pair EUR / USD gives a signal that is inconsistent with the expectations for interest. The price came out of consolidation by dropping to the previous bottom, forming the trend-turning formation from the double bottom. At this level is also 61.8% Fibonacci, which makes it even more significant. Demarker, after a short fall below 0.3, has already risen and is out of surplus sales. This means traders are of the opinion that after the interest rate rise in December, the Fed will most likely make a longer-than-expected pause before acting again-giving the chance that inflation in the country will respond to their rate of tightening monetary policy .

Another good signal for this is the fact that unemployment is at record low levels - which means that no matter how good the data is, there is not much room for further reduction - which means that if supply can not grow, demand it is also possible to slow down, forcing the Fed to wait before they act again.

Price Action signal from swallow bar at strong support levels: For a more precise input, we expect a 50% correction of the previous bar on Friday and we are positioning a stop at 1.1570 (200 knots). The first obstacle to this trade comes at the horizontal resistance around 1.1542. At these levels is also 50% Fibonacci, as well as 50 MA - I expect short-term fluctuation there. Ratio / profit ratio around this area: 1/1. In a successful breakthrough and test the next obstacle comes at the price of 1.18039 - 38.2% Fibonacci, 200 periodic and horizontal resistance - again a strong level. At this price, our position will now be at a 1: 2 ratio. Upon successful breakthrough and test, the price will go to its final point - 23.6% Fibonacci, around 1.2075 - where the risk-benefit ratio of our deal will be 1: 3.

Alternative Scenario: If the lower bottom is proven lower, the negative price trend will remain and this scenario will be spoiled.

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