EURUSD selloff if Fed keeps rates unchanged

The US Federal Reserve (Fed) is expected to cut interest rates by a quarter of a percentage point today. Economists surveyed by Reuters are almost unanimous that the regulator will reduce borrowing costs to the 3.75–4.00% range by the end of its meeting on October 28–29.

This decision, however, is likely to be based more on inertia than on solid economic grounds. Although, as Fed representatives often say, they rely on incoming data to determine monetary policy.

The US government shutdown, which has already lasted for 29 days, left the US central bank without the September inflation report—the key one for charting the future monetary policy path in the country.

Before the shutdown, the Bureau of Labor Statistics released its August jobs report, which showed that the unemployment rate had gradually risen from 4.0% in January to 4.3% by the end of summer.

Inflation statistics for September were published last week on the White House's orders, as this reading was necessary for calculating increases in social security benefits. The Consumer Price Index (CPI) rose more slowly than expected that month.

Relatively positive CPI data, combined with lingering concerns about the US labor market, mean that there is “no particular reason to change the approach,” after central bank officials indicated in September that a quarter-point rate cut was likely at each of the October 28–29 and December 9–10 meetings.

Any potential disputes, as well as Powell's assessment of the situation and future Fed decisions, will be influenced by the upcoming official data, which may worsen as the government shutdown continues.

According to Fed policymakers, they can fill in some missing data gaps on their own through surveys of a broad group of local CEOs. This allows them to get a sense of the overall hiring and firing situation. Nevertheless, gauging inflation is much harder, creating a significant challenge for the central banks’ attempts to keep the CPI below its 2% target.

There is a high probability that markets have already factored in the Fed’s potential rate cut of 0.25%. But if the US regulator keeps borrowing costs at the same level due to insufficient data after the government shutdown, the EURUSD pair’s downward movement will strengthen significantly.

The overall recommendation is to sell EURUSD if the Fed leaves monetary policy unchanged today. Profits should be taken at the level of 1.15700. Stop Loss could be set at 1.16800.

The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.