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Dovish Fed Testimony to Foster EUR/USD Gains

Dovish Fed Testimony to Foster EUR/USD Gains

2016-06-21 10:00:00
David Song, Strategist
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- Fed Chair Janet Yellen to Testify to Senate Banking Committee, House Financial Services Committee.

- Will Chair Yellen Endorse a Dovish Outlook for Monetary Policy?

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

Trading the News: Federal Reserve Humphrey-Hawkins Testimony

The semi-annual Humphrey-Hawkins testimony with Fed Chair Janet Yellen may produce headwinds for the greenback and spark a near-term advance in EUR/USD should the central bank head show a greater willingness to further delay the normalization cycle.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Following the unanimous vote to retain the current policy in June, Chair Yellen may largely endorse a wait-and-see approach amid the uncertainties clouding the economic outlook, and more of the same from the central bank head may encourage market participants to push out bets for the next rate-hike as the Federal Open Market Committee (FOMC) remains in no rush to implement higher borrowing-costs.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

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

2.2%

2.2%

Advance Retail Sales (MoM) (MAY)

0.3%

0.5%

Personal Spending (APR)

0.7%

1.0%

Signs of sticky price growth accompanied by the pickup in private-sector consumption may prompt Chair Yellen to adopt a more upbeat tone for the U.S. economy, and a shift in the policy outlook may generate a bullish reaction in the dollar as it fuels interest-rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Real Average Weekly Earnings (YoY) (MAY)

--

1.1%

Consumer Credit (APR)

$18.000B

$13.416B

Non-Farm Payrolls (MAY)

160K

38K

Nevertheless, Chair Yellen may largely preserve a cautious outlook for the region amid subdued wages paired with the sharp slowdown in job growth, and the greenback stands at risk of facing near-term headwinds should the central bank head talk down bets for an imminent rate-hike.

How To Trade This Event Risk(Video)

Bullish USD Trade: Chair Yellen Turns Upbeat on Economy

  • Need red, five-minute candle following the statement to consider a short trade on EUR/USD.
  • 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 entry; look for at least 1:1 risk-to-reward.
  • Move stop to entry on remaining position once initial target is hit; set reasonable limit.

Bearish USD Trade: Fed Testimony Drags on Interest-Rate Expectations

  • Need green, five-minute candle to favor a long EUR/USD trade.
  • Implement same setup as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart
  • EUR/USD may resume the upward trend carried over from December following the failed attempt to test the June low (1.1113), with a break/close above 1.1460 (78.6% retracement) raising the risk for a run at the 2016 high (1.1615).
  • Key Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Key Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Check out the short-term technical levels that matter for AUD/USD heading into the testimony!

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

Impact that the Humphrey-Hawkins Testimony has had on EUR/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

FEB 2016

02/10/2015 14:00 GMT

--

--

-22

+59

February 2016 Humphrey-Hawkins Testimony

EUR/USD Chart

Fed Chair Janet Yellen struck a dovish outlook for monetary policy while delivering the Humphrey-Hawkins testimony, with the central bank head warning current economic conditions will only warrant a ‘gradual’ rise in the benchmark interest rate as amid the external risks surrounding the U.S. economy. Moreover, Chair Yellen argued ‘monetary policy is by no means on a preset course’ as the central bank remains data dependent, and the central bank may have little choice but to further delay its normalization cycle amid the slowdown in global growth. The initial decline in EUR/USD was short-lived, with the pair climbing back above the 1.1250 region to end the day at 1.1287.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Crosses Important Short-term Resistance on Global Rally in Risk

USD/JPY Technical Analysis: A Return To USD/JPY Of 2008-2011?

EUR/USD Timing Compares Favorably with Early 2000s Base

EUR/USD: Breach of Weekly High to Fuel Reversal From Monthly Open

--- 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.

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