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EUR/USD Risks Near-Term Pullback on Hawkish FOMC Statement

EUR/USD Risks Near-Term Pullback on Hawkish FOMC Statement

2017-07-26 15:15:00
David Song, Strategist
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- Federal Open Market Committee (FOMC) to Keep Benchmark Interest Rate on Hold.

- Will the Fed Start to Unload the Balance Sheet in 2017?

- Sign Up & Join DailyFX Currency Strategist John Kicklighter LIVE to Cover the FOMC Meeting.

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

FOMC Rate Decision

The Federal Open Market Committee (FOMC) interest rate decision may yield a limited market reaction as Chair Janet Yellen and Co. are widely expected to retain the current policy, but the accompanying policy statement may boost the appeal of the U.S. dollar should the central bank show a greater willingness to start unloading the balance sheet in 2017.

Why Is This Event Important:

The FOMC may prepare U.S. households and businesses for a less accommodative stance amid the growing discussion to wind down the quantitative easing (QE) program, and the batch of fresh rhetoric may boost the appeal of the greenback should Fed officials highlight an imminent shift in monetary policy. However, the committee may soften its hawkish tone as inflation continues to run below the 2% target, and the greenback stands at risk of facing a bearish scenario should Chair Yellen and Co. look to further delay the normalization cycle.

Impact that the FOMC rate decision has had on EUR/USD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN

2017

06/14/2017 18:00:00 GMT

1.00%-1.25%

1.00%-1.25%

-54

-50

June 2017 Federal Open Market Committee (FOMC) Interest Rate Decision

EUR/USD 10-Minute

EUR/USD Chart

DailyFX 3Q Forecasts Are Now Available

As expected, the Federal Open Market Committee (FOMC) raised the benchmark interest rate to a fresh range of 1.00% to 1.25% in June, with central bank officials still projecting three rate-hikes for 2017 as the ‘near-term risks to the economic outlook appear roughly balanced.’ At the same time, the Fed raised its growth forecast, with the U.S. economy now projected to expand an annualized 2.2% this year, and Chair Janet Yellen and Co. appear to be on course to further normalize monetary policy over the coming months as the region approaches full-employment. The greenback gained ground following the 25bp rate-hike, with EUR/USD slipping below the 1.1250 region to end the day at 1.1218.

How To Trade This Event Risk(Video)

Bullish USD Trade: FOMC to Unload Balance Sheet in Coming Months

  • Need a red, five-minute candle following the rate decision to consider a short EUR/USD trade.
  • If the market reaction favors a bullish dollar trade, sell EUR/USD with two separate lots.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bearish USD Trade: Chair Yellen and Co. Endorse Wait-and-See Approach

  • Need a green, five-minute EUR/USD candle to consider a short dollar position.
  • Implement the same approach as the bullish dollar trade, just in the opposite direction.

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • The shift in EUR/USD behavior may continue to unfold in the second-half of 2017, but the pair stands at risk for a near-term pullback as it struggles to hold above the 1.1670 (78.6% expansion) hurdle.
  • At the same time, the Relative Strength Index (RSI) appears to be showing a textbook sell-signal as the oscillator comes off of overbought territory, with the first downside region of interest coming in around 1.1580 (100% expansion) followed by 1.1480 (78.6% expansion).
  • Interim Resistance: 1.1616 (2016-high) to 1.1670 (78.6% expansion)
  • Interim Support: 1.0980 (50% retracement) to 1.1020 (50% expansion)

EUR/USD Sentiment

EUR/USD Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

Retail trader data shows 24.4% of traders are net-long EUR/USD with the ratio of traders short to long at 3.1 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06785; price has moved 8.9% higher since then. The number of traders net-long is 4.5% lower than yesterday and 16.0% lower from last week, while the number of traders net-short is 3.1% lower than yesterday and 9.7% higher from last week.

--- 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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