Forex Signals Brief for June 14th – FED Policy Decision Simplified, Get Ready To Trade!
Arslan Butt • 4 min read
The financial markets are trading uncertainty in anticipation of the major releases from the central banks. That's why we aren't seeing any trend continuation pattern. Despite the slow market, our forex trading signal on the precious metal gold managed to bring in some green pips.
Yesterday, the US dollar floated calmly in fresh trading ranges ahead of the Federal Reserve release today. This is because investors are anxiously waiting for clues as to what will be later in the US trading session. They are specifically waiting for the Fed's policy outlook.
At this point, we are experiencing very thin trading volume as investors are hesitating to enter the market before the Federal Reserve's policy decision.
What To Expect From Federal Reserve?
Today, everyone is expecting an interest rate hike of 25bp. Logically, if the Fed actually raise the interest rate to 1.25%, the US dollar should achieve massive gains against peer currencies. The problem though is that the rate hike sentiment is very strong in the market and everyone has already "priced in".
Therefore, there are solid chances of a reversal in the US dollar even with the release of hiked interest rates.
How To Trade Fed Fund Rate – An Idea
In this section of the article, I'll share potential trade ideas to be used upon the release of the Fed interest rate decision. Let me add though that it's just an idea, as we can't know what is going to be the actual decision.
If the Feds Hike Fund Rate By 25bp: There are high chances of a neutral impact and even a reversal in the bullish greenback. This would not surprise me or any other trader. This is something that we have already traded.
If the Feds Keep Rate On Hold To 1%: That would be a surprising scenario. Therefore, investors would be likely to trigger a heavy sell-off in the US dollar and the prices of the dollar would drop dramatically.
If the Feds Hike Fund Rate By 50bp: Highly unexpected, to the point where this seems impossible, but it's better to have a plan for unexpected events. In this situation, all we would need to do is to close our eyes and buy the high volume of US dollar with a proper stop loss. There would be massive buying, and the US dollar would skyrocket, changing the overall outlook of the market.
Investors' 3 Major Focuses
Dot Plot – We have to see if it still shows 1 more rate hike in the year 2017.
- Hawkish – If it shows more than 1 rate hikes ahead – Bullish Dollar
- Dovish – If it shows only 1 more rate hike in the year 2017 – Bearish Dollar
Economic Projection – Any change to the central bank’s economic projections will make a difference, including; a discussion on GDP growth, labor market efficiency and inflation targets.
FED Balance Sheet- When and how they intend to reduce the $4.5 trillion balance sheet? If they share a timeline, it's hawkish and we need to invest in the US dollar.
Top Economic Events To Watch Today
- Average Earnings Index 3m/y (8:30)
- Claimant Count Change (8:30)
- Unemployment Rate (8:30)
- CPI m/m (12:30)
- Core CPI m/m (12:30)
- Core Retail Sales m/m (12:30)
- Retail Sales m/m (12:30)
- Crude Oil Inventories (14:30)
- FOMC Economic Projections (18:00)
- FOMC Statement (18:00)
- Federal Funds Rate (18:00)
- FOMC Press Conference (18:30)
- GDP q/q (22:45)
EUR/USD – Ready For Breakout In A Sideways Trend
The EUR/USD is lacking a specific direction, as the pair is bolted into a narrow trading range with a lower limit of $1.1165 and an upper limit of $1.1280. Overall, the Euro started to trade on the upside against the US dollar, especially, after the first round of French parliamentary elections on Sunday. The election results showed that President Emmanuel Macron’s party was set to grasp a tremendous majority in France. In response to this, the pair traded with a bullish bias.
Forex Trading Signal – Idea
Sell Limit – The idea is to stay in selling below $1.1285 with a minor stop loss of $1.1310 and a take profit of $1.1160 & $1.1100.
Sell Stop – Below $1.1150 with a target of $1.1108.
EUR/USD – Double Top Pattern – Hourly Chart
Technical Outlook – Intraday
The market hasn't fluctuated a lot on Tuesday, therefore, the market is likely to follow the same fundamentals. On the 4-hour chart, the EUR/USD has stuck in a narrow trading range with a lower limit of $1.1165 and an upper limit of $1.1280.
The major resistance prevails at $1.1285, the double top level, whereas, the immediate support is found at $1.1160. Moreover, the EUR/USD is holding below 50 periods EMA, which is demonstrating investors' selling bias, but the leading indicators are leaning towards investors' bullish sentiment. The RSI and Stochastic, have both crossed above 50, demonstrating a potential bullish trend. We need to wait for the US session today, before making any trade.
Finally, the long-awaited economic event, the Fed Fund Rate, and FOMC meeting are due to be released during the US sessions. The event is likely to cause massive volatility and trading volume so fasten your seat belts and get ready for quite a ride!