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EUR/USD to Carve Near-Term Top on Hawkish FOMC Minutes

EUR/USD to Carve Near-Term Top on Hawkish FOMC Minutes

2014-11-19 15:15:00
David Song, Shuyang Ren,
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- Federal Open Market Committee (FOMC) Concludes QE Program at October 29 Meeting

- Will the Fed Implement Hawkish-Twist to the Forward-Guidance for Monetary Policy?

Trading the News: Federal Open Market Committee (FOMC) Minutes

The Federal Open Market Committee (FOMC) meeting minutes may heighten the bullish sentiment surrounding the U.S. dollar should we see a growing number of central bank officials show a greater willingness to move away from the zero-interest rate policy (ZIRP).

What’s Expected:

EUR/USD FOMC Minutes

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Why Is This Event Important:With growing speculation for a Fed rate hike in mid-2015, a more hawkish twist to the forward-guidance for monetary policy may spur a near-term selloff in EUR/USD especially as the European Central Bank (ECB) prepares to implement more non-standard measures in December.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (OCT)

0.2%

0.3%

Gross Domestic Product (Annualized) (QoQ) (3Q A)

3.0%

3.5%

Consumer Confidence (OCT)

87.0

94.5

The pickup in private consumption along with the ongoing recovery in household sentiment may encourage the FOMC to adopt a more hawkish tone for monetary policy, and the bearish outlook for EUR/USD may continue to take shape over the near to medium-term amid the growing deviation in the policy outlook.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Average Hourly Earnings (YoY) (OCT)

2.1%

2.0%

Personal Income (SEP)

0.3%

0.2%

Consumer Price Index ex Food and Energy (YoY) (SEP)

1.7%

1.7%

However, the majority of the FOMC may endorse a more neutral tone for monetary policy as subdued wage growth continue to dampen the risk for inflation, and the central bank may endorse a wait-and-see approach over the coming months amid the slowdown in Europe and the Asia-Pacific region.

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How To Trade This Event Risk(Video)

Bullish USD Trade: Fed Officials Show Greater Willingness to Normalize

  • Need red, five-minute candle following the policy statement to consider a short EUR/USD position
  • If market reaction favors a bullish 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: Majority of FOMC Retains Support for ZIRP

  • 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: Make Or Break For AUD/USD

NZDUSD Rally at Risk Sub 7975- Scalps Target Near-term Correction

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term EUR/USD outlook remains bearish, but may see a larger correction if the monthly opening range gives way.
  • Interim Resistance: 1.2610 (61.8% expansion) to 1.2620 (50% retracement)
  • Interim Support: 1.2280 (100% expansion) to 1.2300 pivot

Impact that the FOMC minutes 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)

SEP 2014

10/08/2014 18:00 GMT

-

-

+75

+86

September 2014 Federal Open Market Committee (FOMC) Minutes

EUR/USD Chart

The Federal Open Market Committee (FOMC) struck a similar tone to the policy statement following the September 17th meeting, with the central bank reiterating that the monetary policy outlook will largely be data dependent. At the same time, the Fed curbed its growth forecast for the second half of the year amid growing concern that the ongoing appreciation in the U.S. dollar will have a larger dampening effect on the real economy. Comments surrounding the exchange rate dragged on the greenback, with EUR/USD breaking above the 1.2740 and ending the day at 1.2742.

--- Written by David Song, Currency Analyst and Shuyang Ren

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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