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Major Fed News That's Unlikely Today

Major Fed News That's Unlikely Today

Boris Schlossberg, Technical Strategist

The Fed may not be ready to commit to a timeline for QE tapering at today’s FOMC meeting, but with markets watching intently, US GDP data and the ADP jobs report could produce big US dollar price swings.

The US dollar (USD) was lower against the euro (EUR) and Japanese yen (JPY) in today’s morning European trade ahead of the all-important Federal Open Market Committee (FOMC) meeting.

Traders are anxiously awaiting word on whether the Fed will begin to taper its quantitative easing (QE) program starting in September, and USDJPY started to slide to 97.50 as markets speculated that the Fed may remain stationary for the time being.

Although US labor market data has seen some improvement, other measures of economic activity have been mixed, with overall retail sales remaining flat. Furthermore, some analysts have argued that the Fed may not only be looking at US growth, but also at the global growth picture, especially in China, where the economic slowdown has been much more dramatic.

As a result, US policymakers may not want to compound the problem by curbing stimulus just yet, and the conventional wisdom is that the Fed is likely to remain non-committal with respect to a definitive timeline for the taper.

By September, FOMC officials will have two more employment reports to consider, and they will also get a clearer idea about the budget negotiations, making it possible to make a more confident policy decision at that time.

EUR/USD Still Stuck Below 1.33 Resistance

On the economic front, today’s data out of Europe was mixed, with German retail sales missing badly at -1.5% versus 0.1% expected, but the labor market is nonetheless continuing to show improvement, as unemployment declined by -7K versus -1K forecast.

The EURUSD continues to find very stiff resistance ahead of the 1.3300 level, and the pair was once again rejected at that figure today, selling off towards 1.3275.

2 Big US Event Risks Ahead of the FOMC

Before today’s FOMC statement at 2 pm ET (18:00 GMT), the currency market will get a glimpse of the ADP employment data and US Q2 GDP results. The market essentially expects to see the same readings from ADP as the month prior, but if there is significant deviation either way, the greenback could react violently.

An ADP print of 125K or less would likely create a further selloff in USDJPY, with the pair possibly testing support at 97.00 because hopes of tapering will fade fast.

On the other hand, if ADP prints closer to 200K, USDJPY could quickly start to move higher towards 98.50 as hopes for a more hawkish Fed statement revive the bulls.

By Boris Schlossberg of BK Asset Management

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.