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29 Oct 2014
Focus on potential changes to Fed forward guidance statement - TD Securities
FXStreet (Łódź) - The TD Securities team of experts note that EUR/USD is trading flat ahead of the Fed monetary policy announcement which is expected to bring the end of QE3.
Key quotes
"This FOMC meeting should mark the end of the QE3 program. However, with domestic economic growth momentum beginning to leak lower (e.g., the Atlanta Fed GDP Q3 projection stands at 2.7% q/q annualized, down from 3.2% a couple of weeks ago), and the medium term outlook for the recovery and inflation becoming less certain, there will be no incentives to appear hawkish."
"The key element today will be any potential changes to the forward guidance statement that would remove the reference to the fed funds rate staying at current levels for a 'considerable time after the asset purchase program ends' and make the timing for liftoff more data dependent."
"Market pricing currently implies a first hike would occur in October 2015. And, as price action yesterday demonstrated, the FX market in particular appears to be very sensitive to changes around Fed timing expectations."
"Disappointing US data saw the USD falling quite noticeable across the board, whereas both EURUSD and USDJPY had ignored domestic data releases earlier in the day."
"Overnight, USDJPY once again was unresponsive to a stronger-than-expected industrial production reading. The risk, however, is that the statement fails to live up to the overly dovish tone that the market may be expecting."
"In this case, we would expect to see USDJPY pushing higher into the high 108s, and EURUSD having a somewhat more pronounced reaction, pushing lower into the low 1.26 area."
Key quotes
"This FOMC meeting should mark the end of the QE3 program. However, with domestic economic growth momentum beginning to leak lower (e.g., the Atlanta Fed GDP Q3 projection stands at 2.7% q/q annualized, down from 3.2% a couple of weeks ago), and the medium term outlook for the recovery and inflation becoming less certain, there will be no incentives to appear hawkish."
"The key element today will be any potential changes to the forward guidance statement that would remove the reference to the fed funds rate staying at current levels for a 'considerable time after the asset purchase program ends' and make the timing for liftoff more data dependent."
"Market pricing currently implies a first hike would occur in October 2015. And, as price action yesterday demonstrated, the FX market in particular appears to be very sensitive to changes around Fed timing expectations."
"Disappointing US data saw the USD falling quite noticeable across the board, whereas both EURUSD and USDJPY had ignored domestic data releases earlier in the day."
"Overnight, USDJPY once again was unresponsive to a stronger-than-expected industrial production reading. The risk, however, is that the statement fails to live up to the overly dovish tone that the market may be expecting."
"In this case, we would expect to see USDJPY pushing higher into the high 108s, and EURUSD having a somewhat more pronounced reaction, pushing lower into the low 1.26 area."