Top.Mail.Ru
empty
06.05.2025 12:50 AM
Fed Rate Cut Probability Is Near Zero

This image is no longer relevant

This week marks the third Federal Reserve meeting of the year. At the first two meetings, monetary policy parameters remained unchanged, and there is virtually no chance of a rate cut or hike on May 7. I say "cut or hike" because Trump's trade policy could, at some point, force the FOMC even to tighten monetary policy. That may sound hard to believe now, but just a couple of months ago, few market participants expected such a rally from the U.S. dollar or such a disruption of the global trade balance from Trump.

Trump's policies could significantly raise inflation in the U.S. — inflation the Fed has been trying to tame for years. The Fed may raise interest rates if inflation returns to problematic levels. Let's recall that Powell and other Fed governors have frequently emphasized the dual mandate of the central bank: full employment and low inflation. As labor market and unemployment data showed on Friday, the situation did not worsen in April. Inflation also remains relatively low, so at the moment, the best decision is to pause. Powell also stated that the first effects of the new trade policy won't become visible before summer — or possibly even fall. Thus, it's reasonable to assume that the Fed won't change interest rates at least until then.

This image is no longer relevant

As for market expectations, only 1.8% of economists foresee a 25 basis point rate cut on May 7. For the June meeting, the probability of a rate cut (according to the CME FedWatch tool) stands at 33.6%. By year-end, most economists expect three to four rounds of easing. This means that most of the market anticipates a notable deterioration in U.S. economic indicators during the summer, pushing the Fed to actively lower rates in the second half of the year. If the market barely reacts to rate cuts by the European Central Bank or Bank of England, I have little doubt that it will react to Fed easing. Based on the current wave count, further dollar depreciation remains the primary scenario — and the news backdrop supports this view.

Wave Analysis of EUR/USD:

Based on the analysis of EUR/USD, I conclude that the pair continues to form an upward trend segment. In the near term, the wave count will depend entirely on the position and actions of the U.S. president. That must be constantly kept in mind. According to wave theory alone, I had expected a three-wave correction pattern within Wave 2. However, Wave 2 has already completed as a single-wave correction. Wave 3 of the upward trend is now underway, with targets potentially reaching the 1.2500 area. Their attainment depends solely on Trump. At the moment, Wave 2 within Wave 3 appears close to completion. Therefore, I am considering long positions with targets above 1.1572, corresponding to the 423.6% Fibonacci extension level.

This image is no longer relevant

Wave Analysis of GBP/USD:

The wave count for GBP/USD has transformed. We are now dealing with a bullish, impulsive trend segment. Unfortunately, under Donald Trump, markets may face many shocks and reversals that defy wave counts and any kind of technical analysis. The upward Wave 3 is unfolding, with nearby targets at 1.3541 and 1.3714. It would be ideal to see a corrective Wave 2 within Wave 3 before the rally resumes. But for that to happen, the dollar must strengthen, requiring someone to buy it. Trump must stop imposing tariffs.

Core Principles of My Analysis:

  1. Wave structures should be simple and clear. Complex structures are hard to trade and often lead to changes.
  2. If you're uncertain about what's happening in the market, it's better not to enter.
  3. There is never 100% certainty in market direction. Always use Stop Loss protection.
  4. Wave analysis can be combined with other types of analysis and trading strategies.
Chin Zhao,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

EUR/USD. What Do the June Nonfarm Payrolls Tell Us?

The U.S. labor market report published on Thursday turned out to be quite contradictory, although the market interpreted it in favor of the American currency. Looking ahead, it is worth

Irina Manzenko 00:48 2025-07-04 UTC+2

USD/JPY. Analysis and Forecast

The USD/JPY pair remains under pressure despite the U.S. dollar posting moderate gains for a second consecutive day, approaching the 144.00 level. Improved global risk sentiment following the trade agreement

Irina Yanina 15:01 2025-07-03 UTC+2

XAU/USD. Analysis and Forecast

Gold prices are struggling to gain momentum after a moderate intraday rebound from the $3340 level. Traders remain cautious, preferring to await the release of the U.S. Nonfarm Payrolls (NFP)

Irina Yanina 12:21 2025-07-03 UTC+2

EUR/JPY. Analysis and Forecast

consecutive day, once again approaching the yearly high reached earlier this week.The trade agreement between the United States and Vietnam has eased concerns over a prolonged trade conflict, increasing investor

Irina Yanina 12:13 2025-07-03 UTC+2

Good News Will Support Stock Markets and Token Demand (Potential Upside for Bitcoin and #NDX)

The market has ignored extremely weak employment data from ADP, focusing its attention on other factors. The ADP report released on Wednesday showed a significant slowdown in the U.S. private

Pati Gani 10:40 2025-07-03 UTC+2

Trump Targets China Through Vietnam

Yesterday, it was revealed that President Donald Trump had reached a trade agreement with Vietnam. This came after several weeks of intense diplomatic negotiations between the two countries and just

Jakub Novak 10:00 2025-07-03 UTC+2

A Wake-Up Call for the U.S. Economy

Yesterday's U.S. employment data served as a wake-up call for the American economy. According to the report, the number of employed persons declined in June for the first time

Jakub Novak 09:55 2025-07-03 UTC+2

The Market Bets on Profits

The market remains confident in a positive future. It hears only what it wants to hear. Negative news is ignored, allowing the S&P 500 to set new records. It doesn't

Marek Petkovich 09:35 2025-07-03 UTC+2

What to Pay Attention to on July 3? A Breakdown of Fundamental Events for Beginners

A significant number of macroeconomic reports are scheduled for release on Thursday, including some key reports. As a reminder, U.S. labor market and unemployment data are typically released on Friday

Paolo Greco 06:53 2025-07-03 UTC+2

GBP/USD Overview – July 3: Jerome Powell Finally Responded to Trump

The GBP/USD currency pair plummeted on Wednesday like a stone. However, every drop in the pair eventually gives way to a much stronger rise. Therefore, at this point, there's

Paolo Greco 03:45 2025-07-03 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.