The United States Federal Funds rate has been at 0.25% or essentially ‘0%’ for nearly 7 years now. Low rates have helped see the US through the other side of the GFC and with an uptick in economic growth, the time has come to start a new cycle of tightening.
Although ‘in play’ for the first time since talk began, it is still highly unlikely that the Fed will pull the trigger tomorrow morning and raise rates. The probability of the Fed raising rates this month is very low according to overnight swaps (2.5%), Fed Funds futures (4%) and Surveyed Bloomberg Economists (1.3%). September is tipped to be the meeting that they make their move, but as we know with markets it’s never over until Janet Yellen sings.
After a disappointing 1st quarter written off by the Fed as seasonal, there have since been widespread improvements in the US economy. This bodes well for any guidance that the Fed is willing to give, something they have spoken about wanting to do so as to gradually ease the market into any change of policy and avoid any wild market spikes or reactions.
With a few scenarios coming from this, let’s take a look at where EUR/USD is sitting from a technical point of view heading into the announcement.
With EUR/USD retesting it’s 1.1200 – 1.1400 previous support zone now acting as resistance, I have been surprised by the level of resilience that the pair has managed to show. Not only a major technical area of resistance but in the current headline driven climate surround Greece combined with expectations of an imminent rate hike from the Fed, a huge sell off from here wouldn’t have even been questioned.
Similar to the AUD/USD chart featured in our Asian Session Morning blog, the EUR/USD 4 hourly shows price coiling into a nice triangle and awaiting a breakout either way. So often this pattern gets chopped up at it’s conclusion rather than trading as a pure breakout like the trading text books tell us.
It still amazes me how price manages to find it’s way to a pivotal technical level like this almost every time we head into a major news release. Let the trade come to you and never be shy to pull the trigger when you have proper risk scenarios defined.
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