Forex trading plan: into the FOMC minutes release
Forex traders are waiting for this week’s highpoint – release of the Federal Reserve’s (FOMC) meeting minutes. There was no press conference after July meeting, so the market players want more information from the central bank. The recent comments from the Fed members were hawkish: Lockhart expects at least 1 rate hike in 2016 and is sure that US economic growth will accelerate; Dudley says rate hike in September is possible as US economy will be stronger in the second half of the year; Williams thinks that the Fed should raise rates this year. It seems that the Fed wants the market to price in higher possibility of rate hikes. In July statement the regulator pointed out that risks to America’s economic outlook have diminished. All in all, the risk is that the statement will be more hawkish. So far traders didn’t believe the hawkish mood of the Fed speakers, the question is will they be swayed by the hawkish Fed minutes? Technical picture shows that the market’s is building ground for new sells of American currency.
Trading plan for the next day will largely depends on the outcome of the Fed’s meeting. Analysts at SEB Bank have a strategy how to trade EUR/USD after the FOMC release. I can add that at the moment of writing EUR/USD is consolidating above support at 1.1260 and 1.1235. Technically the recent move to the upside looks unfinished. Targets are at 1.1376 (February high) and 1.1405 (Fibo extension target). At the same time, hawkish minutes can send the pair to July-August support line around 1.1150.
GBP/USD retraced about 38% of Tuesday’s gains. Tuesday’s close above 1.3000 was good and there’s technical potential for recovery to 1.3100. Yet decline below 1.2990 on hawkish Fed will bring the pound to 1.2940, where the currency should find support. Further support will be at 1.2900 and 1.2850. Data from the UK released this week was positive. On Thursday the UK will publish retail sales data (08:30 GMT) and the forecast is positive.
USD/JPY closed on Tuesday below the key level of 100.70 (50% Fibo of the 2011-2015 advance) – bearish sign. According to the weekly pivot points, the pair’s at the bearish territory. Resistance is at 101.15 (daily high, previous support line). Close below this level will mean continuation of the downtrend and will likely lead to another attempt of the bears to test levels below 100.00. If hawkish Fed hits the wires, we’ll see a recovery to 101.50 and probably to 102.30/80.
The bulls failed to push AUD/USD above 0.7755 for the third time. A selloff to 0.7615 followed. This is the former 2016 resistance line, which now acts as support. Watch where the pair closes on Wednesday – it will provide you with key hints on the pair’s future dynamics. Break below 0.7600 on hawkish Fed will open the way down to 0.7530 (lower border of uptrend channel, 38.2% Fibo). If the pair manages to stay above this important level. We’ll see consolidation in the 0.7600/0.7700 area in the coming days. Note that Australia will release labor market data early during the Asian session on Thursday.