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Trading EURUSD and USDJPY for FOMC with John Kicklighter and Pete Multant

Trading EURUSD and USDJPY for FOMC with John Kicklighter and Pete Multant

Research, Research Team

As you get your FOMC price action setups and fundamental forecasts in order, DailyFX is here to help. Our very own CEO of IG US Pete Multant and Global Head of Content John Kicklighter just hosted a detailed webinar ahead of today’s rate decision.

Perceptions of Monetary Policy Standing DFX

Fed Outlook is Hawkish

As you may already know, the Fed outlook for this year leans extremely hawkish. Multiple Fed policy members moved from dovish to hawkish in 2021, putting an intense focus on the bank for this year.

Looking to the Chicago Mercantile Exchange’s Fed Watch Tool, we can see a wide range of expectations for this year… but for today’s rate decision, most market participants are looking for the Fed to hold rates flat.

Target Rate Probability Jan 26

The bigger question is the remainder of the year, with many expecting the Fed to open the door to a March rate hike at today’s rate decision. But, going out to December, we can see just how varied those expectations are, and this was very much a topic of debate in this morning’s webinar.

Target Rate Probabilities

CME Target Rate Probabilities December 2022

John’s Four Questions

Kicklighter spoke of the four factors he believes are the most critical takeaways from today’s FOMC.

  1. Do they signal a March 16 rate hike?
  2. How likely are four rate hikes through 2022?
  3. Will there be mention the Fed’s plans for quantitative easing?
  4. How willing will they be to weathering volatility?

For detailed analysis of each of these factors and how they impact traders, visit John’s video and written piece on the Federal Reserve Decision Strategy.

What products should you trade through FOMC?

EURUSD- EURUSD is a popular market for Forex traders, especially on a day like today. It’s a high liquidity product and that can be key during environments like what’s being anticipated for this afternoon. The ECB has made it clear they are going to be dovish, keeping interest rates low, while we know the Fed intends on pushing interest rates higher this year. On a technical level, EURUSD has had some nearby trend lines.

EURUSD

USDJPY- Like the ECB, the Bank of Japan also wants to keep interest rates low. On a fundamental level, USDJPY is interesting as a means of gauging risk tolerance. The USDJPY carry trade is the FX equivalent of a dividend-based strategy in equities. As risk appetite decreases, risk-off pairs like USDJPY have a higher potential to break trendlines as that carry trade unwinds. And in times of rising interest rates, the attractiveness of the setup can increase, thereby bringing more bulls and upward price pressure into the matter.

Non dollar based pairs- John recommended traders look at NZDJPY and AUDCAD as potential non-US Dollar forex trades.

John and Pete will have monthly webinars to help traders understand some of the most important pairs in Forex. Visit the DailyFX Webinar page for more.

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

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