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Tamed FOMC Minutes to Fuel Bullish EUR/USD Sequence

Tamed FOMC Minutes to Fuel Bullish EUR/USD Sequence

David Song, Strategist

- Federal Open Market Committee (FOMC) to Endorse Three Rate-Hikes for 2017.

- Will the Statement Highlight a Growing Dissent Amid the Downward Revision in Interest Rate Dot-Plot?

- DailyFX 4Q 2017 Forecasts Are Now Available!

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

FOMC Minutes

The Federal Open Market Committee (FOMC) Minutes may heighten the appeal of the greenback as the central bank appears to be on course to deliver another rate-hike in 2017, but the fresh comments may highlight a growing dissent within the central bank as Fed officials trim the longer-term forecast for the benchmark interest rate.

Even though Chair Janet Yellen and Co. embark on a more aggressive approach to normalize monetary policy, central bank officials may continue to project a more shallow path for the Fed Funds rate as ‘overall inflation and the measure excluding food and energy prices have declined this year and are running below 2 percent.’ In turn, the FOMC may ultimately hit the end of its hiking-cycle ahead of schedule as the committee struggles to achieve the 2% target for price growth.

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)

JUL

2017

08/16/2017 18:00:00 GMT

--

--

+33

+33

July 2017 Federal Open Market Committee (FOMC) Minutes

EUR/USD 10-Minute Chart

EUR/USD

The Federal Open Market Committee (FOMC) Minutes suggest Chair Janet Yellen and Co. will stay on course to deliver three rate-hikes in 2017 as the central bank reiterates that ‘economic conditions would evolve in a manner that would warrant gradual increases in the federal funds rate.’ The FOMC went onto say that ‘the Committee should further clarify the time at which it expected to begin its program for reducing its securities holdings in a gradual and predictable manner,’ but central bank officials appear to be in no rush to implement higher borrowing-costs as ‘members saw the near-term risks to the economic outlook as roughly balanced, but, in light of their concern about the recent slowing in inflation, they agreed to continue to monitor inflation developments closely.’ The greenback lost ground following the cautious remarks, with EUR/USD bouncing back from the 1.1730 region to end the day at 1.1766.

How To Trade This Event Risk(Video)

Bullish USD Trade: FOMC to Further Normalize Monetary Policy in 2018.

  • Need a red, five-minute candle subsequent to the statement to favor a short EUR/USD position.
  • 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: Fed Officials Defend Lower Terminal Benchmark Interest Rate

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

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Sign Up & Join DailyFX Currency Analyst David Song to Discuss Key FX Themes & Potential Trade Setups

  • EUR/USD may continue to retrace the decline from the 2017-high (1.2092) as the pair initiates a fresh series of higher highs & lows after failing to test theAugust-low (1.1662).
  • Failure to break below the 1.1670 (50% retracement) hurdle brings the topside targets back on the radar, with a close above the 1.1860 (161.8% expansion) region raising the risk for a move back towards 1.1960 (38.2% retracement).
  • Keeping a close eye on the Relative Strength Index (RSI) as it works its way back towards trendline resistance, with a break of the bearish formation raising the risk for a further advance in the exchange rate.
  • Interim Resistance: 1.2320 (23.6% retracement) to 1.2370 (61.8% expansion)
  • Interim Support: 1.1390 (61.8% retracement) to 1.1400 (61.8% expansion)

EUR/USD Retail Sentiment

EUR/USD Retail Sentiment

See how shifts in EUR/USD retail positioning are impacting trend- Click here to learn more about sentiment!

Retail trader data shows 41.3% of traders are net-long EUR/USD with the ratio of traders short to long at 1.42 to 1.

In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.07897; price has moved 9.7% higher since then. The number of traders net-long is 5.8% lower than yesterday and 5.7% higher from last week, while the number of traders net-short is 9.0% higher than yesterday and 3.9% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

--- 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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