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EUR/USD Breaks Out Ahead of FOMC- 1.1300 in Focus

EUR/USD Breaks Out Ahead of FOMC- 1.1300 in Focus

2015-04-29 15:15:00
David Song, Shuyang Ren,
Share:

- Federal Open Market Committee (FOMC) to Retain Current Policy, Stay on Course to Normalize.

- Will the Fed Further Delay and Talk Down Bets for June Rate Hike?

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

The fresh commentary coming out of the Federal Open Market Committee (FOMC) may fuel the near-term selloff in the greenback and produce a further advance in EUR/USD should the central bank show a greater willingness to carry its current policy into the second-half of 2015.

What’s Expected:

EUR/USD FOMC

Click Here for the DailyFX Calendar

Why Is This Event Important:Even though the Fed remains on course to remove the zero-interest rate policy (ZIRP), a further delay of the normalization cycle may produce further headwinds for the greenback while boosting risk appetite as Janet Yellen and Co. retain a cautious outlook for the U.S. economy.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product (Annualized) (QoQ) (1Q A)

1.0%

0.2%

NFIB Small Business Optimism (MAR)

98.0

95.2

Advance Retail Sales (MoM) (MAR)

1.1%

0.9%

Waning confidence along with the ongoing weakness in private-sector consumption may push the Fed to retain the highly accommodative policy stance beyond mid-2015, and a fresh wave of dovish comments may raise the risk for a further decline in the greenback as interest rate expectations deteriorate.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (FEB)

$12.500B

$15.516B

Average Hourly Earnings (YoY) (MAR)

2.0%

2.1%

Personal Income (FEB)

0.3%

0.4%

Nevertheless, we may largely get more of the same from the Fed as the central bank anticipates a stronger recovery to materialize later this year, and the policy statement may help to heighten the appeal of the greenback should the committee continue to see scope for a June rate hike.

Join DailyFX on Demand to Cover the Entire FOMC Rate Decision!

How To Trade This Event Risk(Video)

Bearish USD Trade: FOMC Implements Hawkish Twist to Forward-Guidance

  • 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 low/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: Committee Looks to Retain ZIRP for Extended Time

  • 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

  • Failure to retain the bearish trend from February highlights the risk for a larger advance in EUR/USD especially as the upward trend in the RSI gathers pace.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but seeing the ratio approach bearish extremes as it slips to -2.68.
  • Interim Resistance: 1.1290 (78.6% retracement) to 1.1300 pivot
  • Interim Support: 1.0487 (3/13 close) to 1.0515 (50% expansion)

Read More:

EUR/USD Blows Through $1.1050 after US GDP Disappoints at +0.2%

USDOLLAR Breakdown; Look Towards 11620/40

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR

2015

03/18/2014 18:00 GMT

0.25%

0.25%

+22

-70

March 2015 Federal Open Market Committee (FOMC) Interest Rate Decision

EUR/USD Chart

Even though the Federal Open Market Committee (FOMC) stuck to its current policy in March, the central bank removed the ‘patient’ language from the forward-guidance for monetary policy as the central bank looks to normalize monetary policy in mid-2015. At the same time, the Fed downgraded the outlooks for growth and inflation amid the negative spillover effects from low oil prices/strong U.S. dollar. Chair Janet Yellen reiterated that it would be appropriate to raise the interest rate when the labor market improves further, and went onto say that the committee remains confident achieving the 2% target for inflation as central bank officials anticipate a stronger recovery later this year. The bearish dollar reaction was short-lived as EUR/USD quickly snapped back from the 1.1000 to end the day at 1.0767.

--- 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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