FX.co ★ How Will the Dollar React to the FOMC Meeting?

This question is on many minds right now, but attempting to answer it is akin to reading tea leaves. The rate will be lowered, which should reduce demand for the US dollar. However, the market has known for several weeks that a rate cut is forthcoming, as reflected by the CME FedWatch tool. Therefore, the Federal Reserve's decision might already be priced in.

The contradictions and uncertainties do not end there. The Fed has already lowered interest rates twice this autumn without hindering the dollar's stability during that time. Neither the government shutdown nor the new escalation of the trade war created problems for the American currency. If the dollar, for the most part, has not declined in recent months (and, on the contrary, has risen), how could the market have priced in the "dovish" December decision of the Fed in advance?

Over the last two to three weeks, demand for the US currency has declined, which may reflect the market adjusting to the upcoming December FOMC meeting. But as I mentioned in the previous review, we will also learn the dot-plot schedule and Powell's views on monetary policy. That means we have three factors to combine into a single conclusion and base our expectations of market movements on it.

In my opinion, the dollar will not clarify the situation in the currency market today. Let's assume we see a strong increase in the instrument this evening. This growth will not instantly turn the current corrective upward structure into an impulsive one. And if it does turn into one, the instrument should then move upward more quickly than it has in recent weeks and months. Yet the market has shown complete unwillingness to execute trades in the last few weeks and months. As a result, we would see one active day, and then everything returns to its original state.

Now, let's assume we see a strong decline this evening (i.e., a rise in the US dollar). This would signal the beginning of a new corrective downward structure. It would be yet another corrective structure within the expected global wave 4. As we can see, there are no favorable outcomes for the evening. I believe demand for US currency will sharply decline this evening, but this is just a hypothesis based on the overall news backdrop.

Wave Picture for EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument continues to build an upward trend segment. In recent months, the market has paused, but Donald Trump's policies and the Fed's remain significant factors in the US dollar's future decline. The targets for the current trend segment could extend to the 25th figure. However, the last upward trend segment has again taken on a corrective appearance, indicating that a minimum bearish wave of this segment may now begin, while the maximum is a potential new bearish corrective wave formation.

Wave Picture for GBP/USD:

The wave structure for GBP/USD has changed. We continue to deal with an upward impulse trend segment, but its internal wave structure has become complex. The bearish corrective structure a-b-c-d-e in C in 4 appears quite complete. If this is indeed the case, I expect the main trend segment to resume its formation with initial targets around the 38 and 40 figures. However, the wave 4 itself may take on a five-wave appearance.

In the short term, I expected wave 3 or c to form, with targets around 1.3280 and 1.3360, corresponding to the 76.4% and 61.8% Fibonacci retracement levels. These targets have been reached. Wave 3 or c may continue its formation, but the current wave structure is more likely corrective again. Therefore, a decline this week is possible, and the attempt to break the 1.3360 level has been unsuccessful.

Key Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are difficult to play and often carry changes.
2. If there is uncertainty in what is happening in the market, it is better not to enter.
3. There is no absolute certainty in the direction of movement, and there never can be. Don't forget about protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.