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EUR/USD to Find Near-Term Relief on Delayed Fed Rate-Hike

EUR/USD to Find Near-Term Relief on Delayed Fed Rate-Hike

2015-10-28 14:25:00
David Song, Shuyang Ren,
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- Federal Open Market Committee (FOMC) Expected to Preserve Current Policy in October.

- Will There Be Another 9-1 Split Within the Committee?

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

Based on Fed Funds Futures, market participants are pricing a 4% probability for a rate-hike a the Federal Open Market Committee’s (FOMC) October 28 interest rate decision, and more of the same from Janet Yellen and Co. may encourage a near-term rebound in EUR/USD as the central bank further delays the normalization cycle.

What’s Expected:

EUR/USD FOMC

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the FOMC remains on course to remove the zero-interest rate policy (ZIRP), the central bank may try to buy more time amid the downside risks surrounding the real economy, and the dollar may largely struggle to retain the advance from earlier this month should the policy statement reveal another 9-1 split within the committee.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (OCT)

102.9

97.6

Advance Retail Sales (MoM) (SEP)

0.2%

0.1%

Average Weekly Earnings (YoY) (SEP)

2.4%

2.2%

Subdued wage growth paired with the ongoing slack in private-sector consumption may push Chair Janet Yellen to endorse a wait-and-see approach, and increased uncertainty surrounding the timing of the Fed liftoff may produce near-term headwinds for the greenback as market participants scale back bets for higher borrowing-costs.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (SEP)

1.5%

4.7%

Housing Starts (MoM) (SEP)

1.4%

6.5%

Consumer Price Index Core (YoY) (SEP)

1.8%

1.9%

Nevertheless, the FOMC may keep the door open for a 2015 liftoff amid the improvement in the housing market accompanied by the stickiness in consumer price growth, and the dollar may mount a larger advance going into November should the central bank show a greater willingness to normalize monetary policy.

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

How To Trade This Event Risk(Video)

Bearish USD Trade: Committee Tries to Buy Time & Endorse Wait-and-See Approach

  • Need green, five-minute candle following the rate decision to consider a long EUR/USD position.
  • If market reaction favors a bearish dollar trade, buy 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: Fed Shows Greater Willingness to Normalize Sooner Rather Than Later

  • Need red, five-minute candle to favor a short EUR/USD trade.
  • Implement same strategy as the bearish dollar trade, just in reverse.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD stands at risk of resuming the long-term downward trend as the Relative Strength Index (RSI) fails to preserve the bullish formation from back in March; break/close below 1.1000 (78.6% retracement) may spur a move back towards the July low (1.0807).
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd is now net-long EUR/USD going into the end of October, with the ratio currently sitting around +1.06 as 52% of traders are long.
  • Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Interim Support: Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)

Read More:

CAD Struggles as Oil Prices Slip- AUD to Face 3Q CPI Report

Price & Time: USDOLLAR – Quarterly Opening Range Break Ahead?

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)

SEP

2015

09/17/2015 18:00 GMT

0.25%

0.25%

+47

+74

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

EUR/USD Chart

The Federal Open Market Committee (FOMC) voted 9-1 to retain the current policy in September, with Richmond Fed President Jeffrey Lacker dissenting against the majority and pushing for a 25bp rate hike. Despite the ‘moderate’ recovery, it seems as the majority remains unconvinced to remove the zero-interest rate policy (ZIRP) amid the disinflationary environment, and the central bank may look to further delay its normalization cycle amid the downside risks surrounding the region. Even though the Fed kept the door open for a 2015 liftoff, the dollar struggled to hold its ground following the rate decision, with EUR/USD pushing above the 1.1400 handle to end the North American trade at 1.1428.

--- 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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