Should we expect a hawkish surprise from the Fed?

FX:EURUSD   Euro / U.S. Dollar
Citing fairly decent economic data from the US of late, traders trimmed their easing expectations to nearly 60% from over 90% last week. The latest example of robust figures was manufacturing output which posted a stronger-than-expected 0.5% gain in August. Nevertheless, the Federal Reserve rate cut during today’s meeting looks like a done deal amid the lingering concerns over the consequences for the economy from the ongoing trade war with China and signs of slowing growth in general.

As such, the dot plot is the key for this meeting. Despite a rate cut, the greenback could stay afloat, unless the central bank provides an outright dovish surprise in the context of further easing and economic projections. Moreover, the dollar may gain support from George and Rosengren as both should dissent again at the meeting.

In this scenario, EURUSD will fail to regain the 1.11 barrier and could get back below the 1.10 figure, with the next target comes around 1.0960. But should the Fed disappoint the USD bulls, the euro will spike higher.


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