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EUR/USD July Rebound at Risk on Hawkish FOMC

EUR/USD July Rebound at Risk on Hawkish FOMC

David Song, Shuyang Ren,

- Federal Open Market Committee (FOMC) Anticipated to Preserve Current Policy in July.

- Will We See a Greater Dissent Within the Voting-Committee?

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

The fresh rhetoric coming out of the Federal Open Market Committee (FOMC) may heighten the bullish sentiment surrounding the greenback and spur a near-term decline in EUR/USD should the central bank show a greater willingness to remove the zero-interest rate policy (ZIRP) later this year.

What’s Expected:

EUR/USD FOMC

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Why Is This Event Important:New language endorsing a September liftoff should boost the appeal of the dollar as market participants price higher borrowing-costs, but another unanimous vote may drag on interest rate expectations as Chair Janet Yellen remains in no rush to normalize monetary policy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (JUN)

0.9%

3.2%

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

1.8%

1.8%

ISM Manufacturing (JUN)

53.2

53.5

Sticky price growth along with expectations for faster growth may keep the Fed on course to raise the benchmark interest rate in 2015, and the dollar may resume the long-term bullish trend going into August should the central bank sound more hawkish this time around.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (JUL)

100.0

90.9

Advance Retail Sales (MoM) (JUN)

0.3%

-0.3%

Average Hourly Earnings (YoY) (JUN)

2.3%

2.0%

Nevertheless, weak wage growth paired with the ongoing slack in private-sector consumption may undermine the Fed’s forecast for a stronger recovery, and the greenback may face near-term headwinds should the central bank see scope to further delay the normalization cycle.

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

How To Trade This Event Risk(Video)

Bullish USD Trade: Hawkish Fed Policy Statement Boosts Bets for September Liftoff

  • Need red, five-minute candle following the rate decision 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.

Bearish USD Trade: Committee Looks to Further Delay Normalization Cycle

  • 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

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term outlook for EUR/USD remains bearish amid the divergence in the policy outlook, but the pair may continue to face range-bound prices as it retains the wedge/triangle formation carried over from the first-half of 2015.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but the ratio has come off of recent extremes as it sits at -1.65, with 38% of traders long.
  • Interim Resistance: 1.1180 (23.6% expansion) to 1.1210 (61.8% retracement)
  • Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)

Read More:

Price & Time: Calm Before the Storm?

NZDUSD Breakout or Fake-Out? Key Levels to Know Ahead of FOMC, US GDP

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)

JUN

2015

06/17/2015 18:00 GMT

0.25%

0.25%

+71

+73

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

EUR/USD July Rebound at Risk on Hawkish FOMC

As expected, the Federal Open Market Committee (FOMC) retained its current policy in June, but the central bank sounded more dovish this time around as Fed Chair Janet Yellen pledged to await for a further improvement in the labor market before removing the zero-interest rate policy (ZIRP). Despite speculation for a September liftoff, the ongoing mixed batch of data coming out of the U.S. economy may spur a further delay in the Fed’s normalization cycle as the outlook for growth and inflation remains subdued. The more cautious tone dragged on the greenback, with EUR/USD climbing above the 1.1300 handle to close the day at 1.1334.

--- 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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