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EUR/USD Risks Fresh Monthly Lows on Hawkish FOMC Minutes

EUR/USD Risks Fresh Monthly Lows on Hawkish FOMC Minutes

2015-11-18 16:35:00
David Song, Shuyang Ren,
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- Federal Open Market Committee (FOMC) Minutes Expected to Endorse December Liftoff.

- Will USD Strength Become a Growing Concern for Fed Officials?

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

Despite the ongoing 9 to 1 split within the Federal Open Market Committee (FOMC), the policy meeting minutes may fuel speculation for a December liftoff and spur fresh monthly lows in EUR/USD should the central bank highlight an improved outlook for the world’s largest economy.

What’s Expected:

EUR/USD FOMC Minutes

Click Here for the DailyFX Calendar

Why Is This Event Important:

With the U.S. economy approaching ‘full-employment,’ the Fed may largely stay on course to remove the zero-interest rate policy (ZIRP) at the December 16 interest rate decision as Chair Janet Yellen remains confident in achieving the 2% inflation target over the policy horizon. On the other hand, increased concerns surrounding the slowdown in global growth may drag on interest rate expectations, and the dollar stands at risk of facing a near-term correction should the majority show a greater willingness to carry the current policy into 2016.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index ex. Food & Energy (YoY) (OCT)

1.9%

1.9%

Non-Farm Payrolls (OCT)

185K

271K

ISM Non-Manufacturing (OCT)

56.5

59.1

Sticky price growth accompanied by the ongoing improvement in the labor market may prompt the Fed to normalize monetary policy later this year, and the U.S. dollar may appreciate throughout the remainder of the month should the fresh batch of central bank rhetoric boost bets for a 2015 Fed rate-hike.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (OCT)

0.3%

0.1%

Personal Spending (SEP)

0.2%

0.1%

Gross Domestic Product (Annualized) (3Q A)

1.6%

1.5%

Nevertheless, the persistent slack in private-sector consumption paired with fears of a slower recovery may keep the Fed on the sidelines, and most committee members may opt to further insulate the real economy amid the external risks surrounding the region.

Join DailyFX on Demandfor Real-Time Updates on the DailyFX Speculative Sentiment Index!

How To Trade This Event Risk(Video)

Bullish USD Trade: Fed Minutes Fuel Bets for December Rate-Hike

  • 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 Endorses Wait-and-See Approach

  • 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

  • EUR/USD may continue to give back the rebound from earlier this year amid the deviating paths for monetary policy, with the downside targets largely in focus as price & the Relative Strength Index (RSI) fail to retain the bullish formations from back in March.
  • DailyFX Speculative Sentiment Index (SSI)shows the retail crowd remains net-long EUR/USD since November 3, but the ratio remains off of recent extremes as it sits at +1.30, with 56% of traders long.
  • Interim Resistance: 1.1052 (November high) to 1.1090 (50% retracement)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

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 2015

10/08/2015 18:00 GMT

-

-

-11

-10

September 2015 Federal Open Market Committee (FOMC) Minutes

EUR/USD Charts

The Federal Open Market Committee (FOMC) meeting minutes suggests that the central bank remains largely on course to normalize monetary policy in 2015 as ‘many’ officials expect a liftoff later this year, but it seems as though that board remains in no rush to remove the zero-interest rate policy (ZIRP) amid the downside risks surrounding the economic outlook. Even though the Fed continues to prepare U.S. households and businesses for higher borrowing-costs, the central bank may carry its current policy into 2016 should the external risks surrounding the world’s largest economy drag on the outlook for growth and inflation. The initial bearish reaction in the greenback was short-lived, with EUR/USD snapping back from the 1.1300 handle to end the North American trade at 1.1274.

Read More:

USDCAD Technical Analysis: Big Test at September 29th Range

Price & Time: Gold – Can It Get Out Of Its Own Way?

AUD/USD Outlook Mired by Bearish Channel Despite Wait-and-See RBA

GBP/USD Technical Analysis: The Cable is All Wound Up for Inflation Data

GBP/USD Range Vulnerable to Unexpected Slowdown in U.K Consumer Price Index (CPI)

--- 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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