The FOMC Minutes Outlook You Need To Know

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The FOMC Minutes Are Here, But Do They Matter?

The FOMC Minutes Not Expected To Move Markets

The FOMC Minutes are at hand once again and may move the market. I mean, they sometimes move the market but this week probably won’t be one of them. The FOMC has indicated they are patiently waiting for data to lead them in their policy choices. The data so far shows a robust U.S. economy with very little inflationary pressure. Those pressures may change soon as trade woe and tariffs worm their way into the economy but not yet. This week the minutes are likely to reveal more of the same, a patiently waiting Fed.

The market, despite Jerome Powell’s hints to the contrary, is expecting a rate cut by the end of the year. The odds are now standing at 75% for at least one cut by December, possibly two or even three if the economy tanks. The Dollar Index has been edging higher in the last few weeks and is now sitting just below a resistance target. This target is just below the recent high at $98 and may contain the index until the minutes are released. Upon the release the index may move higher provided the FOMC is still bullish on the economy.

The risk is that the minutes may reveal a more-cautious than expected Fed and that could be bad for the market. If the Fed gets too cautious odds for a rate-cut will increase and the dollar is likely to weaken. Regardless, the index is expected to trend sideways longer-term. The key support and resistance targets at this time are $97.50/the 30-day EMA and $98.25/the recent high. A move to either is an opportunity to fade the market but I’d wait until after the minutes are released before opening such a trade.

The EUR/USD May Move Lower

The EUR/USD is poised to move lower but that move may be halted by support at the 1.1200 level. Price action and technical indication are bearish so a downward movement is the most likely scenario. Support may be reinforced or weakened by the FOMC minutes or data due out from the EU. EU data due out this week includes consumer confidences, Manufacturing PMI, and EU parliamentary elections on Friday.

The GBP/USD May Also Move Lower

The GBP/USD may also move lower and let me tell you, this chart looks a lot more bearish. The GBP/USD has been in a steady downdraft for over two weeks and doesn’t show any signs of slowing. The indicator are both bearish and support lower prices as does last week’s break below support. Support at 1.2800 was shattered and open up 1.2600 and 1.2400 as targets. This week there is quite a bit of UK data so look for some volatility in the least.

What You Need to Know Before the FOMC Meeting

The FOMC meeting is sure to bring volatility to forex markets. Here is what you need to know before it happens.

The FOMC is going to surprise the market

Granted, it’s not really a surprise if you know what’s going to happen before it does but not everyone has the same opinion I do. The FOMC is going to surprise the market when they release their policy statement later today.

Why? Economic data in the US has been edging higher, inflation pressures are becoming more visible and the market is increasing its expectation for aggressive action from the Fed. The data, the trends and the outlook support the idea of 2% inflation this year and reason enough for the FOMC to strike a hawkish tone in today’s statement. For most this means an increase in the expected pace of interest rate hikes but what could be more aggressive than a preemptive strike indicating not 2 but 3 more hikes this year, or even a surprise rate hike today?

The USD has strengthened against most pairs over the past two weeks as FOMC outlook firms. The EUR/USD has shed more than 40 pips in that time, breaking out of a solid trading range and setting a four month low. It hit minor support in the wee hours leading up to the meeting but that support does not appear to be very strong.

EU data released today is positive, PMI edged up a little more than expected and GDP was inline with expectation, but not enough to move the pair higher. The indicators are both bearish, pointing higher and convergent with the new low suggesting a hawkish tone from the Fed will send this pair lower.

The GBP found some support in early Wednesday trading as well. The pair has been in downtrend as the dollar strengthened on FOMC outlook. Today’s data firmed the pound sparse as it was. UK construction PMI suggests expansion is accelerating in the UK which supports the idea of a BoE rate hike at their next meeting two weeks from now. The indicators are bearish however, pointing lower and convergent with the new low, suggesting underlying weakness in this market. Support is near 1.3600, a move below there following the FOMC statement would be bullish for the dollar and bearish for this pair. My target is near 1.3400.

The USD/CAD has been treading water over the past week, near the mid-point of a long-term trading range, as traders wait on the FOMC. The pair appears to be forming a bullish flag continuation pattern that is supported by the indicators. MACD is bullish and ticking higher in evidence of rising momentum while stochastic moves sideways within the upper signal zone in a sign of market strength. A break above 1.2900 would be bullish with a target near 1.3100, a move below 1.2800 would be bearish with a target near 1.2550.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
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The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system.

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Meeting calendars, statements, and minutes (2020)

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The FOMC holds eight regularly scheduled meetings during the year and other meetings as needed. Links to policy statements and minutes are in the calendars below. The minutes of regularly scheduled meetings are released three weeks after the date of the policy decision. Committee membership changes at the first regularly scheduled meeting of the year.

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4 Highlights From The March FOMC Minutes

The minutes of the March FOMC meeting were released yesterday, which caused the Greenback to jump higher across the board even as geopolitical tensions continued to apply bearish pressure on the Greenback.

Overlay of USD Pairs: 15-Minute Forex Chart

So why did the Greenback jump higher as a knee-jerk reaction? Well, here are key takeaways from the FOMC minutes that you need to know about.

1. Fed is upbeat on the economy

Fed officials were apparently unanimously upbeat on the U.S. economy, at least with regard to growth and inflation.

“All participants agreed that the outlook for the economy beyond the current quarter had strengthened in recent months. In addition, all participants expected inflation on a 12-month basis to move up in coming months.”

As for the labor market, Fed officials were not unanimously upbeat on that. Even so, “Most participants described labor market conditions as strong.”

Those Fed officials who were not as upbeat on the labor market cited the “modest” pickup in wage growth “as suggesting that there was room for the labor market to strengthen somewhat further.”

Other than that, Fed officials also noted that “incoming data [suggested] some slowing in the rate of growth of household spending and business fixed investment.”

However, Fed officials think that these would only be “transitory“.

2. Fed positive on Trump’s fiscal policy

The minutes revealed that the Fed saw Trump’s fiscal plans as being net positive overall.

To quote directly from the minutes:

“Tax changes enacted late last year and the recent federal budget agreement, taken together, were expected to provide a significant boost to output over the next few years.”

FOMC members were only divided on the “magnitude and timing of the [positive] economic effects” of Trump’s fiscal policy, “partly because there have been few historical examples of expansionary fiscal policy being implemented when the economy was operating at a high level of resource utilization.”

3. Trade war is bad for the U.S. economy

The Fed wasn’t really that worried about Trump’s tariff plans. However, the minutes also revealed that:

“[A] strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy. Contacts in the agricultural sector reported feeling particularly vulnerable to retaliation.”

In other words, the Fed is more worried about what the other countries would do to the U.S. in response to Trump’s tariffs.

4. Fed leaning towards faster hikes

The Fed announced during the March FOMC Statement that its projected path for the Fed Funds Rate was unchanged in 2020, which means that the Fed is only pen to two more hikes before the year ends. And that disappointed some rate hike junkies.

However, the minutes had these juicy bits to share (emphasis mine):

“A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected.”

“Some participants suggested that, at some point, it might become necessary to revise statement language to acknowledge that, in pursuit of the Committee’s statutory mandate and consistent with the median of participants’ policy rate projections in the SEP, monetary policy eventually would likely gradually move from an accommodative stance to being a neutral or restraining factor for economic activity.”

This rather hawkish tilt is not really surprising, though. After all, the Fed’s dot plot did show that 7 of the 15 FOMC members were were open to at least three more hikes this year.

As marked below, the dot plot also shows that two Fed officials don’t want further hikes this year.

And the minutes shed some light as to why they weren’t too supportive of further hikes. To quote from the minutes:

A couple of participants pointed to possible benefits of postponing an increase in the target range for the federal funds rate until a subsequent meeting; these participants suggested that waiting for additional data to provide more evidence of a sustained return of the 12-month inflation rate to 2 percent might more clearly demonstrate the data dependence of the Committee’s decisions and its resolve to achieve the price-stability component of its dual mandate.

In short, these two Fed officials don’t want further hikes because they’re not convinced that the recent pickup in inflation is sustainable.

Overall, however, the minutes were relatively hawkish, which is likely why the Greenback jumped higher as a reaction.

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