Fed hawks are concerned about inflation, while doves are worried about a cooling of the labor market, and other FOMC members are uncertain. However, the market expects the Fed to exercise caution. Should we anticipate heightened volatility in the EUR/USD pair in response to the FOMC minutes? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US labor market continues to cool.
- The derivatives market does not believe in a rate cut in 2025.
- Investors are weighing a euro rally against consolidation.
- Long positions on the EUR/USD pair can be opened above 1.159 and 1.161.
Daily US Dollar Fundamental Forecast
The Forex market believes what it hears and turns a blind eye to the obvious. The futures market has not adjusted its forecasts following the release of the latest batch of data confirming the weakness of the US labor market. Average private sector employment from ADP for the four weeks to November 1 fell by 2,500, and unemployment claims for the week to October 18 rose to 232,000. The market continues to give less than a 50% probability of a federal funds rate cut in December, which supports EUR/USD bears.
Market Expectations for Fed Interest Rate
Source: Bloomberg.
The derivatives market estimates the probability of a 25 bps or larger cut in borrowing costs at 68%, and a 50 bps cut at 18%. It seems that the futures market is convinced that the lack of data will force the Fed to postpone monetary expansion from the end of 2025 to the beginning of 2026. This suggests that the US dollar will strengthen in the short term, followed by a weakening in the medium term.
About 30% of investors surveyed by Bank of America believe that the EUR/USD pair will trade in the range of 1.2–1.3 in 2026, while 48% think it will stay in the current range of 1.1–1.2. Two percent are confident that the euro will fall below parity or rise above 1.3. Interestingly, respondents see the Japanese yen as having the greatest growth potential.
World Currencies’ Performance vs. Gold Forecast for 2026
Source: Bloomberg.
Therefore, investors are likely to prefer one of two scenarios: either the major currency pair resumes its upward trend, or it continues to consolidate. Commerzbank supports the first scenario. The bank anticipates that in 2026, the Fed may become vulnerable to political influence from the US administration. The central bank is expected to comply with President Trump’s demand to reduce interest rates. Bloomberg asserts that this development will accelerate economic growth in 2026. However, in 2027, the United States is expected to face stagflation and a recession.
The US president’s recent visits to Asia and the Middle East have taken his attention away from the matter at hand. However, Donald Trump is slowly but surely putting pressure on the Fed again. According to officials, Trump has nearly selected a new Fed chair.
Presently, investors are focused on the October FOMC meeting minutes. Jerome Powell’s remarks at the press conference suggest that the Fed will likely adopt a hawkish stance. As a result, the US dollar is gaining value on rumors. However, it may face a sell-off on the news.
Daily EURUSD Trading Plan
The Forex market’s response to the FOMC minutes will offer insights into the performance of dollar pairs at the turn of 2025–2026. A decline in the EUR/USD following hawkish comments from FOMC officials can be used to open long positions. A conservative strategy implies opening long positions after the euro returns above 1.159 and 1.161.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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