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EUR/USD to Take Cues From Updated Fed Forecasts on Another 9-1 Split

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- Federal Open Market Committee (FOMC) Largely Expected to Retain Current Policy.

- Will Kansas City Fed President Esther George Remain the Lone Dissenter?

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Trading the News: Federal Open Market Committee Interest Rate Decision

Even though the Federal Open Market Committee (FOMC) is widely anticipated to preserve its current policy in June, the updated economic projections coming out of the central bank may drag on the greenback and spark a near-term rebound in EUR/USD should Chair Janet and Co. curb their outlook for growth and inflation.

What's Expected:

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Why Is This Event Important: Moreover, a downward revision in the Fed's interest-rate dot plot may produce near-term headwinds for the greenback as market participants push out bets for the next Fed rate-hike, and we may see another 9 to 1 split within the committee as the majority appears to be in no rush to further normalize monetary policy.

Expectations: B earish Argument/Scenario

Release Expected Actual
Consumer Credit (APR) $18.000B $13.416B
Non-Farm Payrolls (MAY) 160K 38K
Gross Domestic Product (Annualized) (QoQ) (1Q P) 0.9% 0.8%

Waning job growth accompanied by the slowdown in economic activity may push the FOMC to endorse a wait-and-see approach, and the dollar stands at risk for a near-term selloff should the central bank show a greater willingness to further delay the normalization cycle.

Risk: B ullish Argument/Scenario

Release Expected Actual
Average Hourly Earnings (YoY) (MAY) 2.5% 2.5%
Personal Consumption Expenditure Core (YoY) (APR) 1.6% 1.6%
Consumer Price Index ex. Food & Energy (YoY) (APR) 2.1% 2.1%

However, signs of sticky price/wage growth may encourage a greater number of Fed officials to vote for higher borrowing-costs, and a growing rift within the FOMC may spark a bullish reaction in the greenback as it boosts interest-rate expectations.

How To Trade This Event Risk ( Video )

Bearish USD Trade: FOMC Cuts Economic Projection, Rate Dot-Plot Narrows

  • Need green, five-minute candle following the rate decision to consider a long EUR/USD position.
  • If market reaction favors a bearish dollar trade, buy EUR/USD with two separate position.
  • Set stop at the near-by swing low/reasonable distance from cost; at least 1:1 risk-to-reward.
  • Move stop to entry on remaining position once initial target is met, set reasonable limit.

B ullish USD Trade: Fed Highlights Larger Dissent, Stays on Course to Normalize Policy

  • Need red, five-minute candle to favor a short EUR/USD trade.
  • Implement same strategy as the bearish dollar trade, just in the opposite direction.

Potential Price Targets For The Release

EURUSD Daily

Chart - Cre ated Using FXCM Marketscope 2.0

  • The long-term outlook for EUR/USD remains tilted to the downside amid the diverging paths for monetary policy, but the pair may continue to retrace the decline from 2015 as the bullish trend carried over from back in November continues to take shape.
  • 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 EUR/USD heading into the report!

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Impact the FOMC interest 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)
APR2016 04/27/2016 18:00 GMT 0.50% 0.50% -18 -17

April 2016 Federal Open Market Committee (FOMC) Rate Decision

EUR/USD Chart

As expected, the Federal Open Market Committee (FOMC) once again voted 9 to 1 to retain the current policy in April, with Kansas City Fed President Esther George dissenting against the majority for a 25bp rate-hike. The FOMC continued to promote a wait-and-see approach as 'm arket-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little change d, on balance, in recent months,' and the central bank may look to buy more time as they wait for a ' further improvement in labor market conditions and a return to 2 percent inflation .' More of the same from the FOMC sparked a choppy market reaction, with EUR/USD pulling back from the 1.1350 zone to end the day at 1.1319.

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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