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How to trade the Federal Reserve rate decision – Wednesday 1st August 1900BST/1400EST

Updated: Aug 1, 2018

We will see how brave Jerome Powell is after Trump expressing his dissatisfaction

The FOMC are expected to keep the Federal Fund Rate unchanged at 2.00%. Market focus will be heavily shifted towards the statement, in terms of what they expect to happen to interest rates moving forward, there is much for the FOMC to think about with this one.


General market observations

Markets would naturally expect the Federal Reserve to move towards further rate hikes, as there has been a large improvement in economic data for the United States. A healthy reading at an annual rate for GDP at 4.1%. Consumer spending is looking buoyant, after seeing retail sales pick up most recently, rising for a fifth consecutive month. US job growth is strong, however last reading saw the unemployment rate come off the 18-year low from 3.8% to 4%, but the number is still extremely healthy.


Ken FX Freak thoughts

For me, this boils down to whether Jerome Powell is much of an independent strong man is. I say this as President Trump made it very clear via Twitter, of his dissatisfaction with the Federal Reserve rushing to raise rates. Direct pressure added to Jerome Powell from Trump. The Fed chair also needs to consider the flurry of trade battles pushed by Trump, with escalating tariffs which could raise the risk of slowing growth and cause problems to the labor market. In my view, expecting a dovish hold on interest rates, just because of the worries around the trade wars, I believe he will be upbeat on most economic indicators for the country. It depends how the markets read between the lines on further hikes, as the trade war caution could outweigh the positive tone on the economy.


USD reaction

USD trading has been very much range-bound since mid-June, I anticipate for that to change on the back of this decision. Technically for me, a USD breakout to the upside looks more appealing, that will be the case only if the economic forecasts from the Fed are bullish and there isn’t too much concern for now expressed on Trump trade wars. This being said, I would expect to see a chunky move above the resistance seen in the 95.00 region up towards 97.00 area over the coming days.


A dovish decision with signals towards rate hike slowing, which is very much a possibility, USD will come under heavy selling pressure and will likely retreat down to the mid-92 region, last traded here in the month of May.



DXY daily chart view


Stay tuned

As always please keep an eye on my Instagram feed and Twitter @kenfxfreak, to hear my thoughts and digesting the markets view on the decision. Trade what you see and safe trading.

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