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 InstaTrade
© 2007-2025

Recommended Stories

USD/CAD. Analysis and Forecast

On Thursday, the USD/CAD pair received support from buyers and rose above the key 1.3700 level, driven by the overall strengthening of the US dollar. Spot prices have corrected

Irina Yanina 12:14 2025-07-17 UTC+2

Not Everyone at the Fed Agrees with Powell

Given the current confusion within the Federal Reserve and the mounting pressure on its Chair Jerome Powell, not all policymakers agree that interest rates should remain elevated. Thomas Barkin, President

Jakub Novak 11:43 2025-07-17 UTC+2

The Dollar Was Shaken Yesterday — Here's Why

The U.S. dollar came under heavy selling pressure yesterday following media reports suggesting that Federal Reserve Chair Jerome Powell might be dismissed in the near future. This unexpected development triggered

Jakub Novak 11:38 2025-07-17 UTC+2

The Fed Needs to Be Patient

While the U.S. dollar continues to show high volatility driven by Trump's statements, Susan Collins, President of the Federal Reserve Bank of Boston, once again stated in an interview that

Jakub Novak 11:30 2025-07-17 UTC+2

The Market Stands Firmly Behind the Fed

Trump always backs down. And the U.S. President skillfully manipulates the markets. It is quite possible that the rehearsal for firing Jerome Powell was his idea. The goal

Marek Petkovich 09:05 2025-07-17 UTC+2

What to Pay Attention to on July 17? A Breakdown of Fundamental Events for Beginners

Several macroeconomic releases are scheduled for Thursday. In the United Kingdom, data on unemployment, jobless claims, and wages will be published. However, it's worth noting that the market ignored yesterday's

Paolo Greco 07:41 2025-07-17 UTC+2

GBP/USD Overview – July 17: The UK Has Accepted Trump's Terms. Consequences

The GBP/USD currency pair also traded more calmly on Wednesday compared to Tuesday, although a surge occurred in the evening. Let us recall that we do not consider Tuesday's decline

Paolo Greco 03:21 2025-07-17 UTC+2

EUR/USD Overview – July 17: U.S. Inflation Will Only Accelerate

The EUR/USD currency pair traded more calmly on Wednesday than it had on Tuesday, remaining relatively stable until the evening. There were no major fundamental or macroeconomic events in either

Paolo Greco 03:21 2025-07-17 UTC+2

The Dollar Is Accumulating Risk Factors Again

Demand for the US dollar has been growing for the third consecutive week. Initially, it was a slow and sluggish strengthening, but in recent days, it has gained momentum

Chin Zhao 00:45 2025-07-17 UTC+2

GBP/USD: UK CPI and US PPI

The "green tone" of the UK CPI did not help GBP/USD buyers. All signs of stagflation are evident: the UK economy is contracting, the labor market is cooling, and inflation

Irina Manzenko 00:45 2025-07-17 UTC+2
Can't speak right now?
Ask your question in the chat.
 

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 InstaTrade anyway.

We are sorry for any inconvenience caused by this message.