EURUSD- Trading the Fed Open Market Committee (FOMC) Minutes

DailyFX

Trading the News: Federal Open Market Committee Minutes

The Federal Open Market Committees (FOMC) Minutes is likely to heavily influence the U.S. dollar over the next 24-hours of trading amid the growing discussion at the central bank to scale back on quantitative easing.

What’s Expected:

Time of release: 08/21/2013 18:00 GMT, 14:00 EDT

Primary Pair Impact: EURUSD

Expected: --

Previous: --

DailyFX Forecast: --

Why Is This Event Important:

There’s growing speculation that the FOMC will taper the asset-purchase program at the September 17-18 meeting, and further details surrounding the exit strategy should heighten the scope of seeing the Fed switch gears in the following month. In turn, we are largely looking for a more upbeat policy statement this time around.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index (YoY) (JUL)

2.0%

2.0%

Personal Spending (JUN)

0.5%

0.5%

Gross Domestic Product (Annualized) (QoQ) (2Q A)

1.0%

1.7%

Faster inflation coupled with the more broad-based recovery may prompt the FOMC to strike an improved outlook for the U.S. economy, and the policy statement may spark a near-term rally in the USD should we see a growing number of central bank officials adopt a more hawkish tone for monetary policy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

U. of Michigan Confidence (AUG P)

85.2

80.0

Change in Non-Farm Payrolls (JUL)

185K

162K

Consumer Credit (JUN)

$15.000B

$13.818B

However, the FOMC may adjust the policy outlook in favor of its highly accommodative stance amid the ongoing slack in the real economy, and the dollar may face marked selloff should the Fed talk down bets of tapering QE at the September meeting.

How To Trade This Event Risk(Video)

Trade This Event LIVE with DailyFX on Analyst-on-Demand

Bullish USD Trade: FOMC softens dovish tone; lays out more detailed exit strategy

  • Need red, five-minute candle following the release to consider short EURUSD entry
  • If market reaction favors sell strategy, short EURUSD with two-lots
  • Set stop at the near-by swing high or reasonable distance from entry; use this risk for first objective
  • Move stop to cost on remaining position once first target is achieved
  • Place reasonable target for second lot

Bearish USD Trade: Fed adjusts policy outlook to remain accommodative; retains dovish tone

  • Need green, five-minute candle following the release to consider long EURUSD entry
  • Implement same strategy as the bullish trade, just in the opposite direction

Potential Price Targets For The Release

EURUSD Daily

View gallery

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Forex_EURUSD-_Trading_the_Fed_Open_Market_Committee_FOMC_Minutes_body_ScreenShot327.png, EURUSD- Trading the Fed Open Market Committee (FOMC) Minutes

  • EURUSD holds upward trend from July; confluence of 50.0% & 78.6% Fib expansion around 1.3500-10
  • However, topside could be capped amid bearish divergence in the Relative Strength Index
  • A drop below the 61.8% retracement (1.3340) would negate bullish bias
  • Initial downside target comes in at 1.3240, the 78.6% expansion

Impact that the FOMC Minutes has had on USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN 2013

07/10/2013 18:00 GMT

--

--

+36

+126

June 2013 Federal Open Market Committee Minutes

View gallery

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Forex_EURUSD-_Trading_the_Fed_Open_Market_Committee_FOMC_Minutes_body_ScreenShot324.png, EURUSD- Trading the Fed Open Market Committee (FOMC) Minutes

The FOMC struck a rather dovish tone for monetary policy as ‘many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases,’ and the Fed may continue to endorse its current policy stance over the near-term in order to generate a stronger recovery. The greenback struggled to hold its ground following the dovish statement, with the EURUSD climbing above the 1.2900 handle, and weakened further into the close the pair ended the day at 1.2973.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com

Follow me on Twitter at @DavidJSong

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