Talking Points:
- The minutes from the March Fed meeting is due on Wednesday, April 10 at 18:00 GMT.
- The March Fed meeting saw the FOMC eliminate plans to raises rates in 2019, as well as end its balance sheet reduction process sooner than expected.
- Retail traders continue to sell EURUSD and GBPUSD despite broad USD-gains.
Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.
04/10 WEDNESDAY | 18:00 GMT | USD March FOMC Meeting Minutes
The Federal Reserve’s March meeting hit markets like an earthquake. Between the decision to eliminate the prospect of a 25-bps rate hike in 2019 as well as end the balance sheet reduction process later this year, traders were caught off guard. Citing a weakening economic backdrop in the United States thanks to the US government shutdown, coupled with a challenging global environment weighed down by trade tensions, the Fed took what some may consider a surprisingly dovish stance.
Significant dislodgements across asset classes – currencies, bonds, equities, commodities – led to the most volatile day of price action in all of 2019. Yet no less than 48-hours after the March Fed meeting, the FX markets kicked into reverse and saw all the Fed-induced US Dollar losses unwind.
In the weeks since, US growth expectations have continued to rebound, up from 0.5% annualized on the day of the March Fed meeting to 2.1% on April 5, according to the Atlanta Fed GDPNow Q1’19 growth tracker (the NY Fed Nowcast is less bull, at 1.5%). As such, the rationale behind the Fed’s latest decisions will come under a microscope this Wednesday; in turn, greater than normal volatility in USD-pairs should be anticpated.
Pairs to Watch: DXY Index, EURUSD, USDJPY, Gold
EURUSD Price Chart: Daily Timeframe (December 2017 to April 2019) (Chart 1)
EURUSD’s losing streak took a breather this week, but the overarching bearish bias remains in place. Momentum remains firmly to the downside right now, with price below the daily 8-, 13-, and 21-EMA envelope in sequential order. Similarly, daily MACD and Slow Stochastics are trending lower in bearish territory now. The inside day bar on April 4 and the inverted hammer on April 5 likewise suggest that more downside is possible in the near-term. A retest of the yearly low around 1.1176 should be eyed in the coming days.
IG Client Sentiment Index: EURUSD (April 5, 2019) (Chart 2)
Retail trader data shows 74.5% of traders are net-long with the ratio of traders long to short at 2.93 to 1. In fact, traders have remained net-long since Mar 26 when EURUSD traded near 1.12738; price has moved 0.5% lower since then. The number of traders net-long is 4.8% lower than yesterday and 8.6% higher from last week, while the number of traders net-short is 5.2% lower than yesterday and 3.0% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bearish contrarian trading bias.
FX TRADING RESOURCES
Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher, email him at cvecchio@dailyfx.com
Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX
