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

  • Federal Open Market Committee (FOMC) to Keep Benchmark Interest Rate in Current Range of 1.50% to 1.75%. Will Chairman Jerome Powell & Co. Alter the Forward-Guidance for Monetary Policy?
  • EUR/USD Rate Extends Lower Highs & Lows, Eyes 2018-Low as Bearish Momentum Gathers Pace.
Image of FOMC expectations

The Federal Open Market Committee (FOMC) interest rate decision may trigger a bearish reaction in the U.S. dollar as the central bank is widely expected to retain the current policy in May.

More of the same from the FOMC is likely to dampen the appeal of the greenback as it saps bets for four rate-hikes in 2018, and the Chairman Jerome Powell and Co. may largely emphasize that ‘the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data’ amid the ongoing slack in the real economy. In turn, the dollar may ultimately face a bearish scenario, with EUR/USD at risk of paring the decline from the previous month if the central bank merely sticks to the current script.

However, the FOMC may sound more hawkish ahead of its next quarter meeting in June as recent data prints point to above-target inflation, and fresh remarks from central bank may heighten the appeal of the greenback if the committee shows a greater willingness to extend the hiking-cycle. Sign up and join DailyFX Chief Strategist John Kicklighter LIVE to cover the FOMC interest rate decision.

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

2018

03/21/2018 18:00:00 GMT

1.50% to 1.75%

1.50% to 1.75%

+55

+59

March 2018 Federal Open Market Committee (FOMC) Interest Rate Decision

EUR/USD 5-Minute Chart

Image of EURUSD 5-Minute Chart

The Federal Open Market Committee (FOMC) delivered a 25bp rate-hike at Chairman Powell’s first meeting, with the central bank raising the benchmark interest rate to a fresh threshold of 1.50% to 1.75% in March.

It seems as though the Fed will continue to implement higher borrowing-costs over the coming months as ‘the Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate,’ but the central bank appears to in no rush to extend the hiking-cycle as officials continue to project a terminal Fed Funds rate of 2.75% to 3.00%.

The U.S. dollar struggled to hold its ground following the dovish rate-hike, with EUR/USD climbing above the 1.2300 handle to end the day at 1.2338.

EUR/USD Daily Chart

Image of EURUSD Daily Chart
  • Downside targets remain on the radar for EUR/USD as it extends the series of lower highs & lows from earlier this week, while the Relative Strength Index (RSI) sits in oversold territory; need to see the oscillator flash a textbook buy signal (move above 30) to favor a rebound in the exchange rate.
  • Until then, a break/close below 1.1960 (38.2% retracement) to 1.1970 (23.% expansion) opens up the 2018-low (1.1916), with the next region of interest coming in around 1.1810 (61.8% retracement) followed by the Fibonacci overlap around 1.1670 (78.6% expansion) to 1.1680 (50% retracement).

For more in-depth analysis, check out the Q2 Forecast for EUR/USD

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide!

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

--- 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.