– Federal Open Market Committee (FOMC) Expected to Drop ‘Considerable Time’ Phrase
– Will There Be a Larger Dissent as the Fed Looks to Normalize Policy Mid-2015?
Trading the News: Federal Open Market Committee (FOMC) Interest Rate Decision
The Federal Open Market Committee (FOMC) interest rate decision may heighten the bearish outlook surrounding EUR/USD as the central bank is widely expected to implement a more hawkish twist to the forward-guidance for monetary policy.
What’s Expected:
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Why Is This Event Important:Indeed, the FOMC may remove the ‘considerable time’ phrase as the central bank shows a greater willingness to normalize monetary policy in mid-2015, but we may see Chair Janet Yellen strike a more balanced tone this time around as the central bank head appears to be in no rush to remove the zero-interest rate policy (ZIRP).
Expectations: Bullish Argument/Scenario
Release
Expected
Actual
Advance Retail Sales (MoM) (NOV)
0.4%
0.7%
Non-Farm Payrolls (NOV)
230K
320K
Durable Goods Orders (OCT)
-0.6%
0.4%
The resilience in private sector consumption along with the ongoing improvement in the labor market may spur a material shift in Fed rhetoric, and the bullish sentiment surrounding the greenback may gather pace in 2015 should we see a growing number of central bank officials show a greater willingness to implement higher borrowing-costs next year.
Risk: Bearish Argument/Scenario
Release
Expected
Actual
Producer Price Index (YoY) (NOV)
1.4%
1.4%
Personal Income (OCT)
0.4%
0.2%
Personal Consumption Expenditure Core (QoQ) (3Q P)
1.4%
1.4%
However, the Fed may try to anchor interest rate expectations as falling commodity prices paired with subdued wage growth undermines the outlook for inflation, and the dollar may face a larger correction over the near-term should we get more of the same from the central bank.
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How To Trade This Event Risk(Video)
Bullish USD Trade: FOMC Implements Hawkish Twist to Forward-Guidance
Need red, five-minute candle following the policy statement to consider a short EUR/USD position
If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position
Set stop at the near-by swing low/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
Bearish USD Trade: Committee Shows Greater Willingness to Retain ZIRP
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
Read More:
Price & Time: Key Levels to Watch Ahead of the FOMC
COT: US Dollar Index Small Speculators Hold Record Net Long Position
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Failure to retain the bearish momentum in price & RSI raises the risk for a larger rebound in EUR/USD.
Interim Resistance: 1.2600 pivot to 1.2610 (61.8% expansion)
Interim Support: 1.2280 (100% expansion) to 1.2290 (38.2% expansion)
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)
OCT
2014
10/29/2014 18:00 GMT
0.25%
0.25%
-81
-109
October 2014 Federal Open Market Committee (FOMC) Interest Rate Decision
As expected, the Federal Open Market Committee (FOMC) concluded the quantitative easing (QE) program in October, but retained a dovish tone for monetary policy as the central bank looks to retain the highly accommodative policy stance for a ‘considerable time.’ Nevertheless, it seems as though the Fed remains well on its way to normalize monetary policy next year as the central bank further discusses the exit strategy. The dollar strengthened following the end of QE , withEUR/USD dipping below 1.2650 and ending the day at 1.2617.
— Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx