US FOMC Interest Rate | March 16, 2016 | Currency Trading

Event Details At-A-Glance:
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US FOMC Interest RateUS FOMC Interest Rate decision today is likely the main focus of the week and with market calling for more rate hikes by the Fed before year end, today’s release is unlikely to surprise, but with recent CPI and NFP releases, anything is possible…

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2:00pm US FOMC Interest Rate Forecast 0.50% Previous 0.50%
DEVIATION: N/A

Let’s take a look at the prior changes for last FOMC Statement as our basis for today’s FOMC Statement.

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*BOLD [ ] INDICATES CHANGES.

January 27, 2016  –  FOMC Statement Analysis

Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year [revised from “economic activity has been expanding at a moderate pace.”]. Household spending and business fixed investment have been increasing at moderate [revised from “solid”] rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources [revised from” shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year.”]. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined further [revised from “remain low”]; survey-based measures of longer-term inflation expectations are little changed [revised from “have edged down”], on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. [DELETES “balanced outlook” statement: “Overall, taking into account domestic and international developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced.”] Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook. [Restores language about closely monitoring global concerns]

 Given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. [DELETES “reasonably confident that inflation will rise, over the medium term, to its 2 percent objective.”]

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo.

Here’s what the “Fed Whisperer” said recently:

(US) Fed watcher Hilsenrath (WSJ):

  • Fed likely to leave interest rates unchanged in March; sees little urgency to hike until more certain on reaching inflation goals
  • Will leave April or June open for hikes
  • Latest Fed minutes suggest officials are increasingly reluctant to raise rates in March and possibly beyond – Citing “dimmed outlook and indications that inflation could stay at low levels longer than expected.”
  • Latest fed funds futures markets see “94% chance it won’t raise rates in March, an 83% chance it won’t move before midyear and about a 50% chance the Fed won’t move rates at all in 2016.”
  • Says the Fed used the word “uncertain” or “uncertainty” 14 times in the January minutes, compared to seven times in December

Considering all of the facts at hand, I expect to see no further policy action today. However, market could react to other factors such as if the Fed would decide to keep policy change open in June or beyond.  This means we should pay attention to everything said during the press conference and the FOMC statement as the entire market will also be watching…

Here are some potential scenarios:

  1. If Feds hike during today’s meeting: USD will gain across the board, I would BUY USDJPY immediately.
  2. If Feds talk about policy adjustment in June (hike): We should see plenty of demand for the USD and both BUY USDJPY and SELL EURUSD should work for long-term trades.
  3. If Feds are concerned over the economy and wants to wait and see: We should see selling pressure on the USD; I would focus on going LONG both EURUSD and GBPUSD…

 

Thanks,




Currency Pair Stats
Pair2H50+2H50RangeDirectionPN30PN60PN90Spike
AUDUSD39.4%75.0%5896.0%13222622
EURUSD55.6%95.8%7394.9%19323530
GBPUSD52.5%83.3%7194.9%21354125
NZDUSD43.2%58.3%5993.8%13222619
USDCAD35.4%50.0%5297.0%16252917
USDCHF48.5%54.2%6594.9%20343826
USDJPY37.4%33.3%5193.9%16262923
2H-50+ = % of 50+ pips move in 2hrs. | 2H-50 = % of 50+ pips move in 2hrs. for the last 2 years | Range = average range in 2 hrs. | Direction = % match following news direction | PN30 / PN60 / PN90 = average pips move before news release in 30, 60, or 90 mins. period | Spike = initial average spike
About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

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