Fed Policy Outlook to Dictate Market Trend

EUR/USD, NASDAQ 100 OUTLOOK:

• The Fed’s interest rate announcement will take center stage on Wednesday
• A dovish monetary policy outlook could spark a rally in risk assets and weigh on the U.S. dollar. A hawkish outcome would have the opposite effect
• In this article, we scrutinize key technical thresholds for observation on the Nasdaq 100 and EUR/USD

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The Federal Reserve will disclose its penultimate monetary policy decision of the year tomorrow. Wall Street analysts expect the central bank to keep its benchmark rate unchanged in its current range of 5.25% to 5.50%. This puts the spotlight on forward guidance, particularly Chairman Powell’s remarks during his press conference.

In September, the Fed left open the possibility of additional policy firming this year, but conviction around further tightening has been waning of late, with several key officials indicating that the bond market is doing the work for them by tightening financial conditions via rising yields. Traders should closely heed Powell’s views on this matter.

If Powell expresses preference for another quarter-point hike in 2023, the Nasdaq 100 could take a strong hit. For its part, the U.S. dollar could climb sharply against the euro as traders reprice higher the Fed’s terminal rate. With the economy holding up remarkably well and inflation displaying notable stickiness, this scenario should not be completely ruled out at this stage.

Conversely, if the FOMC chief adopts a more cautious stance and signals that the hawkish hiking campaign that began in 2022 has ended, there is scope for the Nasdaq 100 to stage a solid rally. The EUR/USD may also see an upturn, but any gains would be curtailed by the macroeconomic challenges confronting the Eurozone economy, including the potential threat of a recession.

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EUR/USD TECHNICAL ANALYSIS

EUR/USD retreated on Tuesday after failing to clear its 50-day simple moving average near 1.0695, with sellers back at the steering wheel. If weakness intensifies in the upcoming days, trendline support at 1.0535 may provide a buffer against further losses, unless a breakdown unfolds, in which case, we could witness a move toward the 1.0500 handle.

On the flip, if the bulls engineer a strong resurgence and manage to push prices higher, initial resistance stretches from 1.0670 to 1.0695. Upside clearance of this region could rekindle upward momentum, paving the way for a move towards 1.0765, an important ceiling that corresponds to the 38.2% Fibonacci retracement of the July/October pullback.

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EUR/USD TECHNICAL CHART

EUR/USD Chart Created Using TradingView

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NASDAQ 100 TECHNICAL ANALYSIS

The Nasdaq 100 has rebounded from an area of cluster support that spans from 14,150 to 13,930, where the lower limit of the short-term descending channel aligns with the 200-day SMA and the 38.2% Fibonacci retracement of the October 2022/July 2023 rally.

To create a potential route for a bullish comeback, confluence support in the 14,150/13,930 range must hold – failure to do so could set in motion a substantial pullback, potentially leading prices to 13,270, the 50% Fibonacci retracement.

In the event that the bulls succeed in driving the Nasdaq 100 higher, initial resistance is located at 14,600. Successfully piloting above this barrier could boost buying interest, setting the stage for a climb towards 14,860. On further strength, the focus shifts to 15,100.

NASDAQ 100 TECHNICAL CHART

Nasdaq 100 Futures Chart Created Using TradingView

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