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Wild Wednesday: Anything Is Possible, Even A Disappointment Despite Fed Tightening

Dear Traders,

It’s Fed-decision day and the waiting finally comes to an end. After several days of range-bound conditions and low volatility, traders now prepare for volatile swings and trend-setting movements. The probability of a Federal Reserve rate hike is completely priced in while the U.S. dollar shrugged off the bullish bias. The greenback’s reluctance to commit to further tightening suggests that dollar bulls might be unimpressed by the FOMC policy announcement.

The Fed’s monetary policy decision will be announced at 18:00 UTC but the impact on the dollar could be muted as traders appear to be well prepared for a March rate hike. The spotlight however, will be on the following press conference with Fed Chair Janet Yellen and revised rate path projections. Economists expect the path for rates to include three hikes this year and in case of a steeper tightening path, the dollar will rally. However, there is a greater potential for disappointment and if Yellen sounds more balanced, preferring a wait-and-see mode, the dollar will be vulnerable to losses.

All eyes will be on the FOMC announcement but before that major risk event, traders should also pay attention to U.S. Consumer Prices, scheduled for release at 12:30 UTC.

Apart from the Fed decision, elections in the Netherlands will draw the focus back on the euro’s resilience. The Dutch vote is the biggest test of the strength and resilience of the populist surge this year. The euro could therefore tend to fluctuate sharply towards the end of the American trading session.

EUR/USD

From a technical perspective, we expect bearish momentum to accelerate if the euro falls below 1.0570. Lower targets could then be at 1.05 and 1.0380. A short-term resistance is however seen at around 1.0650. If the euro significantly breaks through that resistance-level we may see further gains towards 1.07 and 1.0790.

 

GBP/USD

Today’s short squeeze in the British pound was an impressive reminder that there is still potential for exaggerated movements. The pound surged to a high of 1.2257, which is considered a current resistance-zone in the cable. Above 1.2260 we may see further gains toward 1.23 but everything is possible today and the price action will also hinge on the appetite for USD. We generally anticipate the cable to remain within a range between 1.24 and 1.21 for the time being. On the bottom side, the pound will need to break below 1.2080 in order to invigorate fresh bearish momentum.

The U.K. employment report is due for release at 9:30 UTC and could have a minor impact on the pound.

 

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No Chance Of A Fed Rate Hike?

Dear Traders,

Markets were generally calm as investors wait for decision from the Bank of Japan and the Federal Reserve today. While the euro continued its sideways trend between 1.12 and 1.1140 Tuesday, the British pound dropped significantly below 1.30 as European Union leaders recalled the consequences of a Brexit, provided that Article 50 will be invoked next year.

While the Bank of Japan decision is expected to spark some volatile moves in the market this morning, the focus will be on the Fed meeting and Janet Yellen‘s press conference. The Fed is widely expected to hold rates steady this month but there are a few banks forecasting that officials will hike rates. The argument in favor of a rate increase in September is that traders have too steeply discounted Fed officials’ intent to hike after the central bank has remained on hold for longer than expected. Hawks out there are wondering that, if the Fed is confident in its outlook to send a hawkish signal of an upcoming rate hike in December, why not hike rates now? Many would argue that the Fed doesn’t want to derail the economy before the presidential election in November but on the other hand, politics has little impact on the rate setting decision.

In a nutshell, the odds are in favor of a rate increase in December as the Fed doesn’t like to surprise the market. Dollar gains could therefore be limited as the market expects rates to remain on hold. The central bank will also release fresh “dot plot” projections, probably signaling one quarter-point rate hike by the end of the year.

Whatever the case, we will be prepared for surprises as well as breakouts in both directions.

The Fed is due to unveil its rate decision at 18:00 UTC, followed by the FOMC press conference 30 minutes later.

EUR/USD

The euro formatted a slight downtrend channel and it will now need to break below the current support level around 1.1130 in order to revive fresh bearish momentum towards the lower bound at 1.1090. In the unlikely event of a Fed rate hike, the dollar will soar, sending the euro below 1.1050. However, above 1.1220 gains could be limited until 1.1290.

chart_eur_usd_daily_snapshot21-9-16

 

GBP/USD

The pound fell to a one-month low against the greenback. We now see a next lower target at around 1.29 from where potential pullbacks may occur. Based on the current downward channel we see a resistance at 1.3125. The price action will be however dominated by the appetite for dollars. Below 1.2850 the pound could head for a renewed test of its record-low at 1.2797.

chart_gbp_usd_4hours_snapshot21-9-16

 

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UP Or DOWN For The USD?

Dear Traders,

Today is going to be an historic day, as the Federal Reserve is expected to normalize monetary policy and end seven years of near-zero interest rates. The following guidance is expected to be dovish, implementing less than three increases of 0.25 percentage points in 2016. Market participants will turn their focus to the FOMC Press Conference, led by Fed Chair Janet Yellen. It might be a communicative challenge for Ms. Yellen, as the Fed neither want to cause turbulence with any hawkish comments nor want to lose their credibility. Anything can happen today, so traders should prepare for big moves in either side. If Yellen signals a clear guidance regarding the Fed’s tightening cycle, the USD could rally. However, the risk is to the downside for the greenback, as any cautious comments could trigger a sharp selloff.

The U.S. dollar advanced against its major peers going into the Fed’s decision. The British pound dropped like a stone on the Bank of England’s dovish monetary policy outlook. BoE Governor Carney said in an interview that economic conditions for a U.K. rate hike are not yet in place. The U.K. central bank has signaled it is in no rush to follow the Fed which is forecast to begin policy tightening.

The U.K. Employment Report is scheduled for release today at 9:30 GMT and the focus will be on Average Weekly Earnings. If wage growth comes in softer than expected, sterling could be vulnerable to further losses.

Eurozone Consumer Prices are due for release at 10:00 GMT, but as long as data meets expectations, the impact on the euro could be limited.

The Federal Reserve decides on monetary policy at 19:00 GMT, followed by the press conference at 19:30 GMT.

Let’s have a look at the technical side:

EUR/USD

Looking at the daily chart, we see the pair still trading within a downward channel. Depending upon the Fed speak, we see some chances that dollar bulls may drive the EUR/USD to lower levels. Lower targets could be at 1.0840 and 1.08. In case the pair falls significantly below 1.0780, the focus turns to 1.0690 and 1.0635. The support line is at 1.0450 but an unambiguously hawkish statement would be needed in order to send the pair towards such levels.

A bullish scenario could gain attraction with prices above 1.11.A sustained break above this key resistance could lead the EUR/USD towards 1.13.

Chart_EUR_USD_Daily_snapshot16.12.15

GBP/USD

We see an upward channel within a primary downward channel. While the primary trend is downwards, the pound sterling formatted a recent upward channel, which is still intact this morning. If GBP breaks below 1.5020 and further 1.50, we expect the pair to decline towards lower targets at 1.49 and 1.4850. Based on the recent upward channel, it is also possible that sterling rebounds, heading for 1.5130 and 1.5290.

Chart_GBP_USD_Daily_snapshot16.12.15

 

Everything will depend on the Fed. So,we will wait and see. We wish all traders profitable trades for today.

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We wish you good trades and many pips!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2015 Maimar-FX.

www.maimar.co