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Key EUR/USD Levels to Watch for FOMC- ‘Qualitative’ Guidance in Focus

Key EUR/USD Levels to Watch for FOMC- ‘Qualitative’ Guidance in Focus

2014-03-19 14:20:00
David Song, Gregory Marks,
Share:
FOMC Meeting Building - EUR/USD Currency

- 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:

Key-EUR-USD-Levels-to-Watch-for-FOMC-0044_body_ScreenShot234.png, Key EUR/USD Levels to Watch for FOMC- ‘Qualitative’ Guidance in FocusFOMC Economic Event

Click Here for the Full Economic Calendar

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)

To Cover the Market Reaction to the FOMC Meeting, Join DailyFX on Demand

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

FOMC NEWS - EUR/USD Daily

EUR/USD Daily Chart

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

FOMC Interest Rate Chart

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.

To be added to David's e-mail distribution list, please follow this link.

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