– Federal Open Market Committee (FOMC) to Reduce QE by Another $10B.
– FOMC Meeting Minutes Due Out on May 21.
Trading the News: Federal Open Market Committee Meeting
Another $10B reduction in the Federal Open Market Committee’s (FOMC) asset-purchase program may have a limited impact in propping up the greenback, and it seems as though we would need a material shift in the policy outlook to see a bullish U.S. dollar reaction as the central bank continues to highlight the ongoing slack in the real economy.
What’s Expected:
Why Is This Event Important:
Indeed, the dollar may struggle to hold its ground should Fed Chair Janet Yellen continue to highlight a dovish tone for monetary policy, and the bearish sentiment surrounding the reserve currency may gather pace throughout the first-half of the year as the central bank remains reluctant to move away from its zero-interest rate policy.
Expectations: Bullish Argument/Scenario
Release
Expected
Actual
Durable Goods Orders (MAR)
2.0%
2.6%
Consumer Price Index ex Food and Energy (YoY) (MAR)
1.6%
1.7%
Advance Retail Sales (MoM) (MAR)
0.9%
1.1%
A growing number of Fed officials may show a greater willingness to normalize monetary policy sooner rather than later amid sticky inflation paired with the resilience in private sector consumption, and the dollar may show a bullish reaction to the FOMC meeting should the central bank adopt a more hawkish tone for monetary policy.
Risk: Bearish Argument/Scenario
Release
Expected
Actual
Change in Non-Farm Payrolls (MAR)
200K
192K
ISM Non-Manufacturing (MAR)
53.5
53.1
ISM Manufacturing (MAR)
54.0
53.7
However, the bar remains high to see a material shift in the policy outlook as the central bank continues to identify the persistent slack in the real economy, and the dollar may face additional headwinds over the near-term as the Fed talks down interest rate expectations.
How To Trade This Event Risk(Video)
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BullishUSD Trade: FOMC Cuts Another $10B & Shows Greater Willingness to Normalize
Need red, five-minute candle following the release to consider a short EURUSD trade
If market reaction favors a long dollar trade, short EURUSD with two separate position
Place stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
Move stop to entry on remaining position once initial target is hit, set reasonable limit
Bearish USD Trade: Fed Continues to Highlight Dovish Tone for Monetary Policy
Need green, five-minute candle to favor a long EURUSD trade
Implement same setup as the bullish dollar trade, just in opposite direction
Potential Price Targets For The Rate Decision
Chart – Created Using FXCM Marketscope 2.0
Price & RSI Threatening Trendline Resistance; Higher High on Tap?
Interim Resistance: 1.3960-70 (61.8% expansion)
Interim Support: 1.3800 (100.0% expansion) to 1.3830 (61.8% retracement)
Impact that the FOMC Interest Rate Decision has had on EUR/USD during the last release
Period
Data Released
Estimate
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
MAR 2014
03/19/2014 18:00 GMT
0.25%
0.25%
-100
-101
March 2014 Federal Open Market Committee Interest Rate Decision
As expected, the Federal Reserve reduced its asset purchase program by $10B in March leaving the total monthly purchase total to $55B per month. As has been stated by one FOMC member after another, excluding any major financial disruption it is likely that we will continue to see a $10B taper per month with the QE3 program coming to an end by the end of the fourth 2014 quarter. Following the rate decision and release of updated forecasts we saw broad based USD strength with the EURUSD pair falling 100 pips within the hour.
— Written by David Song, Currency Analyst and Gregory Marks
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx
