- Federal Open Market Committee (FOMC) Widely Expected to Deliver Another $10B Taper
- Will We See a Greater Dissent as the Fed Sees QE Ending in October?
- Need red, five-minute candle following the policy statement to consider a short EUR/USD position
- If market reaction favors a long dollar trade, sell EUR/USD with two separate position
- Set stop at the near-by swing high/reasonable distance from cost; at least 1:1 risk-to-reward
- Move stop to entry on remaining position once initial target is met, set reasonable limit
- Need green, five-minute candle to favor a long EUR/USD trade
- Implement same strategy as the bullish dollar trade, just in the opposite direction
- Remains at Risk for Further Losses as Long as RSI Holds Below 30
- Interim Resistance: 1.3770 (38.2% expansion) to 1.3780 (38.2% retracement)
- Interim Support: 1.3300 Pivot to 1.3310 (78.6% expansion)
Trading the News: Federal Open Market Committee (FOMC) Interest Rate Decision
The Federal Open Market Committee (FOMC) interest rate decision may spur a bearish reaction in the dollar (bullish EUR/USD) should we get more of the same and see another unanimous vote to retain the highly accommodative policy stance.
What’s Expected:
Why Is This Event Important: Even though the Fed is widely expected to conclude its asset-purchase program in October, the forward-guidance for monetary policy may play a greater role in driving USD price action as market participants still see the first rate hike in 2015.
Expectations: Bullish Argument/Scenario
Release | Expected | Actual |
Consumer Price Index (YoY) (JUN) | 2.1% | 2.1% |
Producer Price Index ex Food & Energy (YoY) (JUN) | 1.7% | 1.8% |
Average Hourly Earnings (YoY) (JUN) | 1.9% | 2.0% |
The Fed may sound more neutral this time around amid sticky inflation paired with the uptick in wage growth, and we may see a bullish reaction in the USD should the fresh batch of central bank rhetoric boost interest rate expectations.
Risk: Bearish Argument/Scenario
Release | Expected | Actual |
Pending Home Sales (MoM) (JUN) | 0.5% | -1.1% |
New Home Sales (MoM) (JUN) | -5.8% | -8.1% |
Housing Starts (MoM) (JUN) | 1.9% | -9.3% |
Nevertheless, we may get more of the same from the Fed amid the ongoing slack in the real economy, and the dollar may face another downturn over the near-term as Chair Janet Yellen remains reluctant to move away from the zero-interest rate policy (ZIRP).
How To Trade This Event Risk (Video)
Bullish USD Trade: Statement Shows Dissent & Greater Willingness to Normalize Policy
Bearish USD Trade: FOMC Retains Dovish Forward-Guidance
Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
Impact that the FOMC rate decision has had on EUR/USD during the last meeting
Period | Data Released | Estimate | Actual | Pips Change (1 Hour post event ) | Pips Change (End of Day post event) |
JUN 2014 | 06/18/2014 18:00 GMT | 0.25% | 0.25% | -12 | +19 |
June 2014 Federal Open Market Committee (FOMC) Interest Rate Decision
The Federal Open Market Committee (FOMC) reduced its asset-purchase program by another $10B in June, but retained the dovish forward-guidance for monetary policy as the central bank reiterated that the benchmark interest rate is likely to stay low for a considerable period of time even after the Fed halts the quantitative easing program. The initial reaction to the FOMC interest-rate decision was short lived as the EUR/USD failed to hold below the 1.3550 region and the greenback lost ground during the remainder of the North American trade as the pair closed at 1.3594.
--- Written by David Song, Currency Analyst