Market alert: Will central banks move markets on Wednesday?

This Wednesday will be crucial for the markets and especially for EURUSD and DE30 as traders await messages from the two most important central banks: the Fed and the ECB. In this analysis we outline what to expect and present the current situation on EURUSD and DE30 instruments.  

Summary:

  • The ECB under pressure to deliver more
  • Has the Fed discussed interest rate cuts?
  • A double bottom formation on EURUSD chart
  • Evening star on DE30 but the trend is strong

Will the ECB need to return to the QE (quantitative easing)?

Just few months ago the ECB discussed about the future rate increases and now it has announced a lending program for banks (called TLTRO3) because the economy is in troubles again! This program might not be enough and some on the markets have already started speculating about a return of the QE. In our view, the ECB will try to stick to its view that economic problems are temporary and will try to postpone any further measures for as long as it can. However, Draghi will face many difficult questions so the post-meeting conference will be very interesting (start: Wednesday, 1:30pm BST).

What will the FOMC minutes show?

The Federal Reserve had a clear message at its last meeting in March – no more interest rate hikes this year. This helped stock markets but the dollar remained fairly strong as a situation in Europe seems to be even more difficult. The minutes will show a detailed discussion from that meeting. When we look at Fed futures, markets are actually discounting at least one interest rate cut until the end of the next year. Is the Fed ready for this? In our view, many FOMC members are not and will want to see clear signs of economic slowdown before they could even think about lowering rates. However, if there was just such discussion that would be enough to keep markets speculating about this possibility (Wednesday, 7pm BST).

The yellow dots show that FOMC members do not see rate increases this year. The lines (Fed arte futures) suggest interest rate cut no later than next year and these expectations have actually increased since the last meeting! Source: Bloomberg, XTB Research

EURUSD technical situation

One can see a clear double bottom formation on the EURUSD D1 chart. However, the pair remains in a downward wedge and a price still needs to break out of it. The key resistance is quite far – at 1.1515 while the key support remains at 1.1175. Source: xStation5

DE30 technical situation

A technical situation on DE30 is very interesting. This market has been in a very strong upwards trend since late December 2018. This trend has been augmented by the reversed head and shoulders formation and eclipsed by a clear upwards channel. However, a price is at an upper limit of the channel and we can see the evening star (bearish) formation. The nearest support is at 11775 points. Source: xStation5  

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