Fed Meeting Preview Talking Points:
- The June Fed meeting will conclude on Wednesday, June 19 at 18:00 GMT with Fed Chair Jerome Powell’s press conference starting at 18:30 GMT.
- At the May Fed meeting, policy officials made clear that their hawkish bias was quickly dissipating, suggesting that no interest rate changes would be made “for some time.”
- Retail traders are net-long EURUSD but recent changes give us a bearish EURUSD trading bias.
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.
06/19 WEDNESDAY | 18:00 GMT | USD FEDERAL RESERVE RATE DECISION AND PRESS CONFERENCE
With trade war concerns raging and global financial markets’ volatility steadily pushing higher, the Federal Reserve’s June meeting on Wednesday comes at a critical moment. The prospect of the US economy’s record 10-year expansion being threatened has garnered the attention of policymakers, with Fed Chair Jerome Powell saying that the Fed would “act as appropriate” if needed in a speech at the start of June.
Federal Reserve Interest Rate Expectations (June 18, 2019) (Table 1)
Overall, after getting pulled forwarded quite aggressively with expectations of three 25-bps rate cuts in 2019, rates markets have settled down in the days leading up to the June Fed meeting. While the Fed is unlikely to act in June, it’s very possible that they initiate the first rate cut as soon as the next meeting in July.
Fed funds futures see a 23% chance of a 25-bps cut at the June Fed meeting, but an 83% chance at the July Fed meeting. Meanwhile, there is a 63% chance of a second 25-bps rate cut in September, and overall, an 82% chance of two interest rate cuts before the end of the year.
EURUSD Technical Analysis: Daily Price Chart (August 2018 to June 2019) (Chart 1)
After appearing to start the process of bottoming out at the start of June, a clear lack of follow through to the topside in recent days has seen EURUSD prices lose significant technical support. The bullish piercing candle on June 6 constituted a near-term swing level of support, and a close back below said level at 1.1200 today would be a strong indication that further losses are due in the days ahead.
Momentum is quickly eroding for EURUSD, with price back below the daily 8-, 13-, and 21-EMA envelope, while both daily MACD and Slow Stochastics have started to turn lower (albeit only the latter is in bearish territory at this time). It’s possible that the coming days see EURUSD rates return to the bullish falling wedge pattern; if so, the odds of a reversal back to the yearly lows near 1.1110 would increase.
IG Client Sentiment Index: EURUSD (June 18, 2019) (Chart 2)
EURUSD: Retail trader data shows 56.1% of traders are net-long with the ratio of traders long to short at 1.28 to 1. The number of traders net-long is 5.6% lower than yesterday and 23.9% higher from last week, while the number of traders net-short is 3.1% higher than yesterday and 22.6% 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. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher, email him at email@example.com