Source: Growth Aces Forex Trading Strategies
EUR/USD
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[li] The Federal Open Market Committee will meet this week to discuss monetary policy issues. No policy change is widely expected, but investors will focus on the statement, and whether the Fed will drop the following sentence: Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.
[/li][li] Fed Chair Janet Yellen has repeatedly suggested that this wording rules out a rate hike at the subsequent two meetings. If the word patient is still in the statement there will be no rate hike in June. However, such a scenario is less probable. After the February employment report released last Friday (non-farm payrolls rose 295k and unemployment rate fell to 5.5%) we are almost certain that the patient guidance will be dropped on Wednesday. This means the continuation of the EUR/USD rate fall.
[/li][li] We present the similarities of changes in the FOMC statements ahead of the first rate hike in 2004 and 2015 in the table below. We see that in 2014 the Fed dropped the word patient only one meeting ahead of the first rate hike.
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[li] The Fed will also release an update of its quarterly update od macroeconomic forecasts. The most important for investors will be interest rates projections. December 2014 projection shows that the FOMC median sees the Fed funds target rate at 1.125% at year-end 2015, at 2.5% at year-end 2016 and at 3.625% at year-end 2017. In our opinion the Fed is likely to lower the year-end 2015 interest rate forecast by 25 bps current projection assumes four rate hikes by 25 bps which is rather impossible given USD strength and low inflation.
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GBP
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[li] GBP traders will be focused on Britains jobs reports scheduled for Wednesday. Unemployment rate is expected to fall to 5.6% in January from 5.7% in the previous month. Earnings data will be probably more important for investors. The market expects average weekly earnings growth rate to remain flat 2.2% and growth excluding bonuses to accelerate to 1.8% from 1.7% a month earlier.
[/li][li] The GBP/USD is under still under pressure. We will be looking to get short again at 1.4890. The next target for the GBP/USD bears could be near 1.4688 daily low on June 22, 2010. The GBP is likely to appreciate against the EUR and break below the psychologically relevant level of 0.7000.
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CHF
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[li] The Swiss National Bank will meet on Thursday. It is expected to keep the target range for the 3-month Libor unchanged. However, there are low chances of a cut.
[/li][li] The SNB will present updated inflation forecast, for the first time reflecting strong CHF appreciation in January. The inflation and GDP growth forecasts will be very likely adjusted downwards compared to the projection from the previous quarter. The State Secretariat for Economic Affairs (SECO) will publish update of their macroeconomic forecasts also on Thursday. Also in this case we should expect lower GDP growth and inflation.
[/li][li] Updated SNB forecasts will weigh down on the CHF. We stay USD/CHF long, our medium-term target is 1.0300.
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