TheNews

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:

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.

How To Trade This Event Risk
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.

Bullish 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

• 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)

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 ‘market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, 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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