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EUR/USD Consolidating Ahead of the FOMC Event Risk

Today, the FOMC will conclude its 2-day meeting and announce its vote on monetary policy. This meeting will have a little extra because the committee is to also present its growth and inflation projections for the next 2 years. This will be an additional piece of clue to FOMC's rate hike projection. At the moment, the market is expecting a rate hike come mid-2015 (leaning to earlier). Also, the bank is likely to maintain the benchmark interest rate at near 0%, while reducing the bond purchase program by $10B. Janet Yellen's press conference after the official release of the statement will also be highly monitored for tone.

Hawkish = Strong economic/inflation projection. Faster tapering. Positive comment on housing market and job market recovery. Bottomline, whatever makes the rate hike projection to be early 2015.

Neutral = Nothing new, everything remains vague. Cautious tone regarding economic recovery. Bottomline, rate hike expectation remains near mid-2015.

Dovish = Slower rate of taper (smaller than $10B). Conservative economic and inflation forecast. Concerns highlighting slow job market recovery. Bottomline, rate hike expectation pushed back to the latter half of 2015.

EUR/USD is consolidating ahead of the FOMC risk event. The pair at first ranged between 1.3512 and 1.3575, but moved higher to 1.3585 this week. It settled back toward the middle of the consolidation range, and has now established a higher low, showing an attempt to establish a price bottom with the current consolidation range.

(eurusd 4h chart, 6/18)

A hawkish FOMC should pressure the EUR/USD because the USD should strengthen. If price then falls back below 1.3540, the focus is back toward the 1.3512 low, 1.35 handle, and the 1.3476 low on the year.

A neutral FOMC might still allow the market to fade EUR/USD, but if it does not break below 1.3540, the bottoming attempt is still in play. However, if price follows with a break above 1.3585, the market would expose the 1.3621 pivot and 1.3676 high after that.

A dovish FOMC should mean a weak USD, which gives traders more fuel to establish this price bottom, and shoot for the 1.3676 high on the month.