FOMC Statement Is Today’s Risk Event


Master Trader
Jun 7, 2009
By Mercaforex

As suspected it would occur, the USD traded in a rather consolidated range against all of the major currencies on Tuesday as investors appeared to be more inclined to wait for today’s FOMC Statement. The U.S. did release its Prelim Non Farm Productivity report yesterday and it showed an increase of 6.4%, which was above the estimate of 5.2%. The number highlights that employers are getting more production out of their employees who have kept their jobs after a serious round of layoffs. The U.S. stock market traded lower yesterday across the board and this once again indicates that we might be seeing some type of reversal take place within trading sentiment, this because the USD did not gain in any significant manner with the declines on Wall Street as it has done during much of this financial crisis.
Most investor eyes will be on the FOMC Statement being released by the Federal Reserve later on today. The Federal Reserve is not expected to change their key interest rate by anyone, but what the market will be looking for is insight into the expectations for the world’s largest economy. Though last week’s Non Farm Employment Change data did improve it is still showing that the U.S. is losing jobs. Also many corporations are still warning their share holders that the outlook for 2010 remains challenging. However, there are many traders who have shown that they believe that the stability that has been achieved signifies somehow that the U.S. economy may be able to pull itself out of a recession sooner rather than later. The question investors are now asking is whether the Federal Reserve will confirm the better expectation or try to dampen over exuberant optimism. The USD will probably trade in a rather cautious manner until the publication of the FOMC Statement, but traders are likely to find opportunistic movement afterwards. In the spirit of keeping its ‘team’ enthused, it is suspected that the Federal Reserve will signal that the economy is improving, will remain tough, but that better day can be expected in the mid-term.

The EUR found itself in a considerably tight trading range on Tuesday as caution festered in the marketplace. The German’s published their Final CPI data yesterday and it came in unchanged from the previous report. Germany also published their WPI and it declined -0.5%, which was worse than the estimate. The numbers continue to point out that deflation is an actual fact on the ground and that the recession within Europe’s largest economic member remains difficult. Today the European Union will release its broad Industrial Production figures and the forecast is anticipating a rise of 0.3%. However the crux of today’s EUR trading will be very dollar centric focused as investors look for clues from the other side of the Atlantic. Tomorrow the Europeans will actually provide a strong dose of trading sentiment into the fray with the German Prelim GDP and French report of the same ilk scheduled for printing. The EUR was able to muster some support yesterday but did not manage to provide traders with much of a direction. That may change later today when the winds from across the ocean blow.

The Sterling consolidated on Tuesday after two rather poor trading sessions. The GBP is still very much trading at the stronger side of its range but is facing two rather distinct risk events today. Having found a tranquil ground yesterday, the Sterling may find that volatility erupts again because of the Inflation Report scheduled to be read aloud in Parliament and discussed in detail by Bank of England Governor Mervyn King. Coupled with the FOMC news that will come from the States, the GBP could have an interesting day of trading. The U.K. will also be releasing its Claimant Count Change numbers. Thursday and Friday will be very quiet regarding economic data from Britain, thus traders will be quite attentive to the onslaught of economic sentiment that will be generated by government officials today.

The JPY traded slightly stronger against the USD on Tuesday as caution prevailed among investors as international equity markets sputtered. Gold languished in trading yesterday as it hardly moved from its perch of 946.00 USD an ounce, showing that there is broad market consolidation before the FOMC results are known. The JPY and the entire marketplace is awaiting impetus from the economic events that will unfold from the U.S. later today.

Written by: Robert Petrucci, Chief Commodity Expert and Forex Analyst.
Technical Analysis

The pair made a bearish movement breaching the resistance level of 1.4110, the Bollinger bands are tightened indicating that this pair could trade in a tight range today. However the daily chart supports the continuation of the bearish move. It seems that going short will be preferable. Support level: 1.4050 resistance level: 1.4190

The 4 hour chart show that the pair is in a bearish configuration as volatility is increasing, and showing only bearish signals. Going short with tight stops appears to be preferable. Support level: 1.6370 resistance level: 1.6530

The bearish channel on the one hour chart continues. The Slow Stochastic on the one hour chart indicates the continuation of the bearish movement within the channel. However the Slow Stochastic on the 4 hour chart is showing the correction of the current bearish trend is possible. Going short with tight stops appears to be the preferable.
Support level: 95.10 resistance level: 96.10.

The Slow Stochastic on the 4 hour chart indicates the continuation of the bullish movement within the channel and will try to breach the resistance level at 1.0870. Going long with tight stops appears to be preferable.
Support level: 1.0790 resistance level: 1.0870.

The Wild Card
There is a very accurate bearish channel forming on the 4 chart. The daily chart also supports a bearish notion. We expect the next target price to be around the 14.00 level. Therefore the preferred strategy today will be a short position.