Two of the most important risk events of this week are scheduled later in the day. One is the Fed interest rate decision in the NY session and another is the RBNZ interest rate decision in the next Asian session.
Both the central banks are expected to keep the official cash rate unchanged. However, investors will be waiting for the statement from both the central banks to analyze the policies going forward.
Fed Interest rate decision and impact on the US dollar
Fed is expected to keep the benchmark interest rates unchanged from 0.25%. Furthermore, it is also expected that the central bank will keep the $85B a month bond buying program unchanged. It would be a big surprise for the market if the Fed reduces the asset purchases, and as a result US dollar may gain heavily going forward. However, this scenario is very unlikely as the incoming data in the last few weeks have been disappointing.
The most important thing in this particular event would be the FOMC statement. Investors are eying any hint regarding the reduction in the asset purchases in the next meeting. So, we need to keep a close eye on the FOMC statement, which will be released later in the day.
US dollar has been consolidating in the past few days after a continuous losing streak. EURUSD traded as high as 1.3830, AUDUSD and NZDUSD traded around monthly highs. Looking at the daily chart of the EURUSD, one can expect heavy moves as the pair is sitting at around yearly highs. There is also a major trend line as plotted in the chart, which can act as a catalyst for the pair. If Fed releases a cautious statement, then we can expect EURUSD and other majors gaining. Otherwise, we can expect US dollar gaining across the board.
Most people believe that there are chances that there will be no tapering in the current year. If this is the case, then US dollar may be sold heavily after the release. Key support for the EURUSD lies at around 1.3710 and resistance is around the previous high of 1.3830.
RBNZ Interest rate decision
RBNZ too is expected to keep the official cash rate unchanged from the previous release of 2.50%. RBNZ Governor has been talking about the possible rate hike in the early part of 2014. However, the exchange rate may push the hike in the interest rates. RBNZ Governor, Wheeler has shown concerns regarding the exchange rates being higher. Many economists believe that the RBNZ will be more dovish this time, and might plan to talk down the currency. If the central bank chooses not to be dovish, then the New Zealand dollar may gain some bids in the Asian session.
Looking at the 4 hour chart of NZDUSD, the pair broke an important up-move trend line as plotted in the chart shown below. The pair is currently testing the broken trend line and resistance at around 0.8260. If the pair manages to break higher again, then it might test 0.8380 or 0.8400 levels again. Otherwise, it may try to close the gap at around 0.8140.
So, trade very carefully friends. Both the events may trigger some volatility in the market.
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Happy Trading friends!
