EUR/USD Forward Guidance: Vulnerable To Less-Dovish Fed
Dailyfx | Jul 30, 2014 12:21PM ET
- Federal Open Market Committee (FOMC) Widely Expected to Deliver Another $10B Taper
- Will We See a Greater Dissent as the Fed Sees QE Ending in October? h3 Trading the News: Federal Open Market Committee (FOMC) Interest Rate Decision/h3
- Need red, five-minute candle following the policy statement to consider a short EUR/USD position
- If market reaction favors a long dollar trade, sell EUR/USD with two separate position
- Set stop at the near-by swing high/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
- Need green, five-minute candle to favor a long EUR/USD trade
- Implement same strategy as the bullish dollar trade, just in the opposite direction
- Remains at Risk for Further Losses as Long as RSI Holds Below 30
- Interim Resistance: 1.3770 (38.2% expansion) to 1.3780 (38.2% retracement)
- Interim Support: 1.3300 Pivot to 1.3310 (78.6% expansion)
The Federal Open Market Committee (FOMC) interest rate decision may spur a bearish reaction in the dollar (bullish EUR/USD) should we get more of the same and see another unanimous vote to retain the highly accommodative policy stance.
What’s Expected:
Why Is This Event Important: Even though the Fed is widely expected to conclude its asset-purchase program in October, the forward-guidance for monetary policy may play a greater role in driving USD price action as market participants still see the first rate hike in 2015.
h3 Expectations: Bullish Argument/Scenario/h3|
Release |
Expected |
Actual |
|
Consumer Price Index (YoY) (JUN) |
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2.1% |
2.1% |
|
Producer Price Index ex Food & Energy (YoY) (JUN) |
1.7% |
1.8% |
|
Average Hourly Earnings (YoY) (JUN) |
1.9% |
2.0% |
The Fed may sound more neutral this time around amid sticky inflation paired with the uptick in wage growth, and we may see a bullish reaction in the USD should the fresh batch of central bank rhetoric boost interest rate expectations.
h3 Risk: Bearish Argument/Scenario/h3|
Release |
Expected |
Actual |
|
Pending Home Sales (MoM) (JUN) |
0.5% |
-1.1% |
|
New Home Sales (MoM) (JUN) |
-5.8% |
-8.1% |
|
Housing Starts (MoM) (JUN) |
1.9% |
-9.3% |
Nevertheless, we may get more of the same from the Fed amid the ongoing slack in the real economy, and the dollar may face another downturn over the near-term as Chair Janet Yellen remains reluctant to move away from the zero-interest rate policy (ZIRP).
h3 How To Trade This Event Risk ( )/h3Bullish USD Trade: Statement Shows Dissent & Greater Willingness to Normalize Policy
Chart - Created Using FXCM Marketscope 2.0
|
Period |
Data Released |
Estimate |
Actual |
Pips Change (1 Hour post event ) |
Pips Change (End of Day post event) |
|
JUN 2014 |
06/18/2014 18:00 GMT |
0.25% |
0.25% |
-12 |
+19 |
The Federal Open Market Committee (FOMC) reduced its asset-purchase program by another $10B in June, but retained the dovish forward-guidance for monetary policy as the central bank reiterated that the benchmark interest rate is likely to stay low for a considerable period of time even after the Fed halts the quantitative easing program. The initial reaction to the FOMC interest-rate decision was short lived as the EUR/USD failed to hold below the 1.3550 region and the greenback lost ground during the remainder of the North American trade as the pair closed at 1.3594.
--- Written by David Song, Currency Analyst
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