FOMC Statement – Awaiting Data – Forex Trading Tips

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Originally updated: 08:00

Trading Bias: Neutral

Currencies: USD, NZD, JPY (pending data)

Current Sentiment: USD weakness

The FOMC statement and press conference is the major news release for the week, occurring at 7:00pm GMT. Prior to that, we have US Advance GDP. There is significant weakness in the USD at the moment as the market bets that the Fed will push back the timing of their first rate hike due to a run of lacklustre data. If GDP is weak that could be another nail in the coffin for the Fed to be dovish.

However it would be wise to stay on the sidelines until after the FOMC statement as it has the propensity to be hugely volatile. If the Fed make clear statements in either a hawkish or dovish direction we will have a good trade on the USD. If they are dovish then the USD weakness may continue, especially given how the market is already positioned net long in USD. If they seem unfazed by the weaker data then the USD is in an excellent position to buy, as it has weakened a lot in short amount of time.

Fundamentals:

The overnight session saw more poor US data with the Conference Board Consumer Confidence Index coming in at 95.2 vs 102.6 expected. Even prior to this the USD was being sold off against all counterparts. UK GDP came in weaker than expected (0.3% vs 0.5%) yet GBP still rallied against the USD due to bets of a dovish FOMC statement. The Dollar Index made fresh lows below 96, the lowest levels since early March.

AUDUSD rallied nearly 200 pips in the session as its recent employment and trimmed mean CPI numbers have come better than expected, making it a relatively strong currency against the backdrop of many struggling economies. The good employment numbers from the 16th April were alluded to by Governor Stevens, which gave Aussie the impetus to outperform against the very weak USD.

Poloz spoke but did not discuss anything market-moving.

Technicals:

EURUSD, GBPUSD, AUDUSD and NZDUSD are all at fresh multi-week highs, while USDCAD, USDJPY and USDCHF are near multi-week lows.

Technically, caution must be used when entering trades at multi-week highs or lows as the move may be exhausted. How far this USD weakness extends will depend mostly on the FOMC statement and Yellen’s conference.

Pull backs in the recent moves to levels of support or resistance may provide worthwhile entry points to short USD, however entering before the events carries a higher risk.

Other Market Moving News:

After USD GDP and the fireworks of FOMC statement we will be looking out for the RBNZ rate decision where they are expected to keep rates on hold but may become more dovish in their statement if they are considering a rate decrease later this year.

Another potentially huge event is the BOJ’s monetary policy statement where there is some speculation that they will add 10 trillion yen per month to their QE program. If they do then we expect the yen to weaken against most other currencies. There is no set time for this release but it usually occurs around 2:00am GMT.

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