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EUR/USD Advance Vulnerable to Growing Dissent Within FOMC

EUR/USD Advance Vulnerable to Growing Dissent Within FOMC

2016-04-27 12:35:00
David Song, Currency Strategist
Share:

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

- Will Others Join Esther George to Dissent Against the Majority?

For more updates, sign up for David's e-mail distribution list.

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

The Federal Open Market Committee (FOMC) is widely expected to retain its current policy in April even as central banks officials project two rate-hikes for 2016, but a growing dissent within the central bank may trigger a near-term selloff in EUR/USD as it boosts interest-rate expectations.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:Even though Fed Chair Janet Yellen remains largely concerned about the ‘external risks’ surrounding the region,

a growing number of Fed officials may look to further normalize monetary policy in the first-half of 2016 especially as the U.S. economy approaches ‘full-employment.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (FEB)

$14.900B

$17.217B

Non-Farm Payrolls (MAR)

205K

215K

Average Hourly Earnings (YoY) (MAR)

2.2%

2.3%

The pickup in private-sector lending accompanied by the ongoing improvement in labor market dynamics may encourage an increased number of Fed officials to favor a higher borrowing-costs, and a greater rift within the committee may prop up the greenback as it fuels bets for a rate-hike at the next quarterly meeting in June.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Durable Goods Orders (MAR)

1.9%

0.8%

U. of Michigan Confidence (APR P)

92.0

89.7

Advance Retail Sales (MoM) (MAR)

0.1%

-0.3%

However, easing confidence along with the slowdown in household spending may dampen Fed expectations for a ‘consumer-led’ recovery, and more of the same from the central bank may drag on the dollar as market participants push out bets for the next Fed rate-hike.

How To Trade This Event Risk(Video)

Bullish USD Trade: Policy Statement Highlights Growing Dissent Within FOMC

  • 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 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: Fed Votes 9-1 Once Again to Retain Current Policy

  • 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

  • The diverging paths for monetary policy casts a long-term bearish outlook for EUR/USD, but the pair appears to be carving a major bottoming-process especially as the Relative Strength Index (RSI) largely preserves the bullish formation carried over from March 2015.
  • Interim Resistance: 1.1510 (50% retracement) to 1.1520 (61.8% expansion)
  • Interim Support: Interim Support: 1.0370 (38.2% expansion) to 1.0410 (61.8% expansion)

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

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

2016

03/16/2016 18:00 GMT

0.50%

0.50%

+113

+135

March 2016 Federal Open Market Committee (FOMC) Interest Rate Decision

EUR/USD Chart

The Federal Open Market Committee (FOMC) voted 9 to 1 to retain the current policy in March, with Kansas City Fed President Esther George dissenting against the majority for a 25bp rate-hike. Moreover, Fed officials scaled back their interest-rate outlook as most officials saw scope for two rate-hikes in 2016, while the central bank also curbed its projection for growth and inflation amid the external factors clouding the economic outlook. The greenback sold off following the more dovish tone for monetary policy, with EUR/USE climbing above the 1.1200 handle to end the day at 1.1222.

Read More:

US DOLLAR Technical Analysis: Retesting 2016 Lows

EUR/JPY Technical Analysis: The Negative Rate Trend Line is Back

EUR/USD and USD/CHF Outside Weeks at Well-Defined Levels

Big Test For Spoos, Big Test For the Markets

Get our top trading opportunities of 2016 HERE

--- Written by David Song, Currency Analyst

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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