Market preparing for all important Fed and RBNZ interest rate decision

One of the most important events is scheduled for tomorrow. The Fed interest rate decision along with the details of the asset purchase program are scheduled to be published. At the last meeting, the fed surprised the market with a reduction in the ongoing QE program. The Fed decreased the asset purchases by $10B. The market is again expecting the central to reduce the asset purchases in the upcoming meeting.

However, the recent developments in the labor market are not encouraging. The last Nonfarm payrolls report revealed that only 74K jobs were added in December. The report was disappointing, as it missed the expectations of 196K jobs. One can say that the weather might have played a role in the decrease in jobs. On the other hand, the unemployment rate plunged to a low of 6.7%, which is very encouraging and close to the fed’s threshold. However, the fall in the unemployment rate could be due to the fall in the participate rate, which dived to 62.8%. Furthermore, we must not forget that the other economic data like retail sales figures and PPI figures registered impressive gains in December, which is another great sign of improvement. The inflation data was also in line with the expectations.

Many economists believe that the fed will continue with its taper plan and reduce the bond purchases by another $10B. This might be Ben Bernanke’s last fed meeting as the chairman before the Janet Yellen takes over. So, this is another aspect to consider in the upcoming Federal Open Market Committee (FOMC) meeting. However, there is no official announcement as yet regarding his retirement.

I still have a slight doubt that the fed will proceed with the taper. I feel the December’s jobs report was a huge disappointment. The fed always considers the labor market as a main force in deciding about the bond purchase program. However, the chances of this scenario are less, but we need to be prepared for any kind of surprise. If the fed decides not to taper, then the US dollar may lose some ground against the majors like the Euro and sterling.

We also have the RBNZ interest rate decision scheduled. About an hour after the Fed’s decision, the RBNZ will announce the interest rate and their policies going forward. There are huge expectations from the RBNZ that the central bank might signal a rate hike in the upcoming meeting. The recently released inflation figures boosted the expectations, as the figures were stronger than expected.

Figure: NZ CPI rate

One key thing to note here that the Wheeler is not supportive of a rise in the New Zealand dollar. However, if a rate hike is on the cards, then even dovish comments may not help to bring the currency down. Some economists believe the RBNZ may plan to hike rates in the March meeting, and may signal the same in the upcoming meeting.

The outcome of both the events are by no means certain. We need to understand one thing that the traders may position themselves ahead of the key events. So, we need to make sure that we are not risking too much trading around these risk events. Both the events may trigger a lot of volatility.

Technically, the EURUSD has a trend line, which has acted as a resistance a lot times. Currently, the trend line is coinciding with the critical resistance at around the 1.3740/50 level. On the downside, the support lies at around the 1.3620 level. The 100 moving average on the 4 hour chart also sits around the same level. The pair is under consolidation at the moment.

The NZDUSD has an important support zone at around the 0.8200 and 0.8160/80 levels, as shown in the daily chart below. Until the pair is trading above this level, I think the pair might continue to trade higher towards the 0.8400 area. The RSI has breached the 50 level, which is a warning sign. However, the critical support region is still intact for the pair. The pair might trade higher after the RBNZ interest rate decision. We need to wait and analyze the price action as we come closer to the risk event.

So, take note of these levels friends while trading.

Get my Daily Market forecast with trade opportunities HERE: Vladimir’s Markets Forecast

Happy Trading Friends!

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