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FOMC Forward-Guidance in Focus; EUR/USD Vulnerable to Less-Dovish Fed

FOMC Forward-Guidance in Focus; EUR/USD Vulnerable to Less-Dovish Fed

David Song, Strategist

- Federal Open Market Committee (FOMC) Widely Expected to Deliver Another $10B Taper

- Will We See a Greater Dissent as the Fed Sees QE Ending in October?

Trading the News: Federal Open Market Committee (FOMC) Interest Rate Decision

The Federal Open Market Committee (FOMC) interest rate decision may spur a bearish reaction in the dollar (bullish EUR/USD) should we get more of the same and see another unanimous vote to retain the highly accommodative policy stance.

What’s Expected:


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Why Is This Event Important:Even though the Fed is widely expected to conclude its asset-purchase program in October, the forward-guidance for monetary policy may play a greater role in driving USD price action as market participants still see the first rate hike in 2015.

Expectations: Bullish Argument/Scenario




Consumer Price Index (YoY) (JUN)



Producer Price Index ex Food & Energy (YoY) (JUN)



Average Hourly Earnings (YoY) (JUN)



The Fed may sound more neutral this time around amid sticky inflation paired with the uptick in wage growth, and we may see a bullish reaction in the USD should the fresh batch of central bank rhetoric boost interest rate expectations.

Risk: Bearish Argument/Scenario




Pending Home Sales (MoM) (JUN)



New Home Sales (MoM) (JUN)



Housing Starts (MoM) (JUN)



Nevertheless, we may get more of the same from the Fed amid the ongoing slack in the real economy, and the dollar may face another downturn over the near-term as Chair Janet Yellen remains reluctant to move away from the zero-interest rate policy (ZIRP). Join DailyFX on Demand to Cover the Entire FOMC Rate Decision!

How To Trade This Event Risk(Video)

Bullish USD Trade: Statement Shows Dissent & Greater Willingness to Normalize Policy

  • Need red, five-minute candle following the policy statement to consider a short EUR/USD position
  • If market reaction favors a long dollar trade, sell EUR/USD with two separate position
  • Set stop at the near-by swing high/reasonable distance from cost; at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is met, set reasonable limit

Bearish USD Trade: FOMC Retains Dovish Forward-Guidance

  • Need green, five-minute candle to favor a long EUR/USD trade
  • Implement same strategy as the bullish dollar trade, just in the opposite direction

Read More:

Price & Time: The Coiled Spring

These Three Factors Favor Continued British Pound Weakness

Potential Price Targets For The Release


EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Remains at Risk for Further Losses as Long as RSI Holds Below 30
  • Interim Resistance: 1.3770 (38.2% expansion) to 1.3780 (38.2% retracement)
  • Interim Support: 1.3300 Pivot to 1.3310 (78.6% expansion)

Impact that the FOMC rate decision has had on EUR/USD during the last meeting


Data Released



Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN 2014

06/18/2014 18:00 GMT





June 2014 Federal Open Market Committee (FOMC) Interest Rate Decision

FOMC Forward-Guidance in Focus; EUR/USD Vulnerable to Less-Dovish Fed

The Federal Open Market Committee (FOMC) reduced its asset-purchase program by another $10B in June, but retained the dovish forward-guidance for monetary policy as the central bank reiterated that the benchmark interest rate is likely to stay low for a considerable period of time even after the Fed halts the quantitative easing program. The initial reaction to the FOMC interest rate decision was short-lived as the EUR/USD failed to hold below the 1.3550 region, and the greenback lost ground during the remainder of the North American trade as the pair closed at 1.3594.

--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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