– Federal Open Market Committee (FOMC) to Deliver Another $10B Taper.
– Fed Chair Janet Yellen to Hold Press Conference at 18:30 GMT.
Trading the News: Federal Open Market Committee Meeting
Indeed, the Federal Open Market Committee (FOMC) is widely anticipated to reduce its asset-purchase by another $10B in March, but the market reaction may not be as clear cut as the previous rate decisions as market participants expect a material shift in the policy outlook.
What’s Expected:
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Why Is This Event Important:
Indeed, a growing number of Fed officials have highlight a new ‘qualitative’ approach for monetary as the jobless rate approaches the 6.5% threshold for unemployment, while a dovish twist to the central bank’s forward guidance may heighten the bearish sentiment surrounding the greenback as it drags on interest rate expectations.
Expectations: Bullish Argument/Scenario
Release
Expected
Actual
Advance Retail Sales (MoM) (FEB)
0.2%
0.3%
Change in Non-Farm Payrolls (FEB)
149K
175K
Personal Spending (JAN)
0.2%
0.3%
The Fed may show a greater willingness to normalize monetary policy sooner rather than later amid the resilience in private sector consumption along with the ongoing improvement in the labor market, and a less-dovish policy statement may spur a marked rebound in the dollar as the fundamental outlook for the U.S. economy improves.
Risk: Bearish Argument/Scenario
Release
Expected
Actual
Consumer Price Index (YoY) (FEB)
1.2%
1.1%
U. of Michigan Confidence (MAR P)
82.0
79.9
Producer Price Index (YoY) (FEB)
1.2%
0.9%
However, the threat for disinflation may encourage Chair Janet Yellen to retain the zero-interest rate policy for an extended period of time, and the reserve currency may face further headwinds over the near-term should the central bank see the recent slowdown in economic activity carry beyond the winter months.
How To Trade This Event Risk(Video)
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Bullish USD Trade: FOMC Cuts Another $10B & Sees Greater Scope to Normalize
Need red, five-minute candle following the release to consider a short EUR/USD trade
If market reaction favors a long dollar trade, short EUR/USD 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 Implements Dovish Twist to Forward Guidance
Need green, five-minute candle to favor a long EUR/USD 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
Failure to Break Monthly Range Will Suggest Higher High is in Place
Need Downside Break in Relative Strength Index to Look for Lower High in Price
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)
JAN 2014
01/29/2013 19:00 GMT
0.25%
0.25%
+4
-106
January 2014 Federal Open Market Committee Interest Rate Decision
As expected, the Federal Reserve reduced its asset purchase program by $10B in January leaving the total monthly purchase total to $65B per month. Although we did not have a February FOMC meeting, plenty of Fed rhetoric that included Yellen’s testimony on capitol hill all but confirmed we will see another taper at the March meeting. 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. Yellen’s first presser at 18:30GMT as Fed chair could provide market participants with insight in regards to policy moving forward in 2014.
— 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