Free Profitable Forex Newsletter
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How To Trade The Fx Event Of The Month? - All Focus On The FOMC Rate Decision Today
It’s time for big moves again guys, so everyone, brace yourselves for some large volatility spikes later today around the time of the FOMC rate decision and the Powell press conference. Today’s Fed meeting is of pivotal importance for the US Dollar as the central bank can make or break the US currency with its decisions and forward guidance communication.
What are the expectations for this Fed meeting?
Interestingly, the US Dollar remains the most robust currency of the major Fx currencies for over a year now as the US economy has continued to surprise positively and outperform the other major economic powers.
We probably sound like a plain broken record by now as we have been repeating this theme for all this period and yet the main theme continues. That is why the Dollar still stands at 2-year highs, and the EURUSD pair is a step away from breaking the 1.1100 level and making new lows for the year.
Volatility is guaranteed today at 2:00 p.m. ET (8:00 p.m. CET) when the Federal Reserve will publish their latest interest rate decision. The wide expectations are for a 0.25% rate cut to be delivered while a smaller group of economists and investors are even expecting a 0.50% cut.
The Dollar reaction in the Forex market will depend primarily on what the Fed delivers tonight.
A 0.25% cut is seen as not enough by many investors so the USD will likely strengthen in this scenario. That will be particularly the case if it is followed by a press conference that leans on the hawkish side (that would be Chairman Powell saying that additional rate cuts and easing are unlikely to be needed for the rest of the year). The USD could soar and make new highs in such a scenario.
Neutral scenario (Most likely outcome)
The other option for the Fed is to underdeliver with a 0.25% cut but balance that with a dovish press conference.
In such a scenario, Powell would use the presser to communicate that the Fed will deliver or stands ready to deliver more easing in the coming months. In this case, markets will likely have a more neutral reaction to the FOMC event and this scenario will probably create fewer trading opportunities for Forex traders.
All in all, in this scenario it will mainly depend on how much dovish or hawkish is the Fed communication and that can be difficult to estimate in the heat of the moment. We also must not forget that the Non-Farm Payrolls is scheduled for release on Friday so how much hawkish or dovish the Fed will be in the future will also depend on that Friday jobs report.
The most dovish scenario will be for the Fed to deliver a larger rate cut (of 0.50%) and to communicate in the press conference that more rate cuts are coming this year as a way to support the economy and fight of the risks to the economic outlook.
In this case, the US Dollar would most probably tumble hard (similar to the reaction after the June Fed meeting) and in this case, the Dollar slide could even extend lower.
What is the likely outcome today?
As usual, central banks always try to deliver a balanced message to markets so the neutral scenario described above is seen as the most likely outcome. Still, it is the most complicated one to trade since it doesn’t mean that the Fed can’t lean on the hawkish or dovish side (in fact, they most probably will).
The Euro side - Where to from here for EURUSD?
The Euro currency remains weak as it remains embattled by a slowing economy, political woes and trade tensions. The rising odds for a “hard” no-deal Brexit in recent weeks are not helping the single currency either. So, from this perspective, the Euro is not in a good position, and the odds for EURUSD are tilted to the downside with the risks for a bearish breakout mounting.
Conclusion - What is the likely EURUSD reaction to today’s Fed meeting?
All in all, the overall reaction in EURUSD is likely to be bearish (assuming the Fed doesn’t deliver the dovish scenario described above). We must also remember that the NFP and the employment data will be released on Friday and that it also has to print solid numbers for the USD to be able to extend the bullish move. If Friday’s reports disappoint by a big margin then that will be a potential big negative factor for the US Dollar in the weeks ahead.
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