Breakdown of the latest developments on the global exchanges
Sep 23, 2021, 9:38 AM GMT

Growing Policy Rate Discord Among FOMC Members Sparks EURUSD Uncertainty

Chair Powell participates in the virtual Federal Open Market Committee (FOMC) press conference on September 22, 2021.

Adverse fluctuations on the EURUSD were sparked late last night following the September policy rate meeting of the Federal Reserve. Nevertheless, the underlying sentiment remains ostensibly bearish, as was demonstrated in length in our last analysis of the pair.

At the highly anticipated policy rate meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve, Jerome Powell and his colleagues expectedly maintained the near-negative Federal Funds Rate unchanged at 0.25 per cent.

Mounting discord amongst the members of the Committee concerning when and by how much it would be prudent to dial back the current monetary support levels sparked heightened volatility outbursts on the EURUSD in the immediate aftermath of the meeting.

The price action of the EURUSD continues to establish a downtrend in the form of a 1-5 impulse wave pattern

As shown on the 4H chart above, the EURUSD is currently in the process of developing a new downtrend, represented by the descending channel. It is structured as a 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory.

Yesterday's monetary policy decision prompted a temporary pullback to the upper limit of the channel and the 61.8 per cent Fibonacci retracement level at 1.17583. It was catalysed by the aforementioned surge in uncertainty, resulting in heightened volatility.

The price action promptly reversed itself from this major support-turned-resistance, which seemingly resulted in the completion of the second retracement leg (3-4) of the Elliott structure.

This behaviour presupposes the likely continuation of the last impulse leg of the downtrend towards a new low. The swing low at 1.16700 represents the last remaining obstacle for bears before the price action enters into decidedly bearish territory. This is further demonstrated by the divergence that has been evolving on the MACD indicator since the beginning of the 1-5 impulse wave pattern.

The FOMC is no longer unanimous in its stance on monetary policy

Nine members of the Committee, including Char Jerome Powell, voted for the monetary policy action, while two members opposed it. Robert S. Kaplan prefers "that the Committee retain greater policy rate flexibility"; and Neel Kashkari, "who prefers that the Committee indicate that it expects to maintain the current target range until core inflation has reached 2 per cent on a substantial basis".

The FOMC is no longer unanimous in its stance on monetary policy

These disagreements on how the FED should proceed to measure the efficiency of its policy rate are prompted by the recent downturn in inflation growth. The latter was the result of easing energy prices, particularly of crude oil.