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Dovish FOMC Minutes to Challenge Bearish EUR/USD Signal

Dovish FOMC Minutes to Challenge Bearish EUR/USD Signal

2015-04-08 13:00:00
David Song, Shuyang Ren,
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- Federal Open Market Committee (FOMC) Pushes Out Interest-Rate Forecast at March Meeting.

- Will the Fed Sound Increasing Cautious and Warn Against Further USD Strength?

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

The Federal Open Market Committee (FOMC) meeting minutes may undermine the bullish sentiment surrounding the U.S. dollar should the statement highlight a more cautious stance on the economy and emphasize the risks surrounding the stronger exchange rate.

What’s Expected:

EUR/USD FOMC Minutes

Click Here for the DailyFX Calendar

Why Is This Event Important:The fresh batch of central bank rhetoric may dampen the appeal of the greenback as the Fed remains in no rush to normalize monetary policy, and a slew of dovish commentary may trigger a larger correction in EUR/USD as market participants scale back bets for a mid-2015 rate hike.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (FEB)

0.3%

-0.6%

Wholesale Trade Sales (MoM) (JAN)

-0.5%

-3.1%

Consumer Credit (YoY) (JAN)

$14.750B

$11.562B

The slump in household spending paired with the slowdown in private-sector credit may become a growing concern for the central bank, and a growing number of Fed officials may show a greater willingness to carry the zero-interest rate policy (ZIRP) into the second-half of this year in an effort to further combat the downside risks surrounding the real economy.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Building Permits (MoM) (FEB)

0.5%

3.0%%

Unemployment Rate (FEB)

5.6%

5.5%

Gross Domestic Product (Annualized) (4Q P)

2.0%

2.2%

Nevertheless, with expectations for a stronger recovery in the second-quarter, the Fed may stay on course to normalize monetary policy in mid-2015 as Fed Chair Janet Yellen argues that the recent batch of soft data are largely due to seasonal and transitory factors.

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How To Trade This Event Risk(Video)

Bearish 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

Bullish 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

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • String of failed attempts to close above near-term resistance may highlight a topping process in EUR/USD especially as the Relative Strength Index (RSI) struggles to preserve the bullish momentum carried over from March.
  • Interim Resistance: 1.0970 (38.2% expansion) to 1.0990 (50% retracement)
  • Interim Support: 1.0700 pivot to 1.0710 (23.6% retracement)

Read More:

Price & Time: Range In Cable Proving Persistent

USD/CAD Retail FX Flips Net-Long at 1.2400 Support

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)

JAN 2015

02/18/2015 19:00 GMT

-

-

+51

+76

January 2015 Federal Open Market Committee (FOMC) Minutes

EUR/USD Chart

The Federal Open Market Committee (FOMC) meeting minutes sounded more cautious this time around as many officials were inclined to retain the zero-interest rate policy (ZIRP) for longer. Despite the positive developments coming out of the U.S. economy, the committee highlight the risk surrounding the global outlook, with some members noting the risk for a further appreciation in the dollar as the Fed looks to change gears in 2015. The greenback struggled to hold its ground following the dovish comments, with EUR/USD breaking above the 1.1400 handle to end the day at 1.1414.

--- 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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