Fed Funds Futures Highlight 95% Probability for 25bp Rate-Hike.

- Will Fed Officials Further Reduce the Longer-Run Interest Rate Forecast?

Trading the News: Federal Open Market Committee (FOMC) Rate Decision

Even though the Federal Open Market Committee (FOMC) is widely expected to vote in favor for a December rate-hike, Chair Janet Yellen and Co. may largely endorse a wait-and-see approach for 2017 as‘the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.’

What’s Expected:

Why Is This Event Important:

The fresh projections coming out of the central bank is likely to take center stage asthe rotation within theFOMC (Chicago Fed President Charles Evans, Philadelphia Fed President Patrick Harker, Dallas Fed President Robert Kaplan and Minneapolis Fed President Neel Kashkari) clouds the monetary policy outlook going into 2017, and a further reduction in the longer-run interest rate forecast may undermine the bullish sentiment surrounding the greenback should central bank officials increase their efforts to tame market speculation. With Fed Funds Futures highlighting a 60% probability for another move in June 2017, a shift in interest rate expectations may heavily influence U.S. dollar price action over the remainder of the year especially as Chair Yellen remains in no rush to remove the accommodative policy stance.

Expectations: BullishArgument/Scenario

Improved confidence paired with the pickup in private-sector activity may encourage the FOMC to further normalize monetary policy in 2017, and the post-electionUSDrally may gather pace over the remainder of the year should central bank officials continue to forecast a terminal interest rate close to 3.00%.

Risk:BearishArgument/Scenario

However, the Fed may continue to warn ‘market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months’ amid the mixed data coming out of the U.S. economy, and the dollar may face a near-term correction should the central bank scale back the interest rate forecast and soften its hawkish outlook for monetary policy.

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How To Trade This Event Risk(Video)

Bullish USDTrade:FOMC Implements Higher Borrowing-Costs, Warns of Looming Rate Hikes

• Need red, five-minute candle following the rate decision to consider a shortEUR/USDtrade.
• If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position.
• Set stop at the near-by swing high/reasonable distance from cost; at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is met, set reasonable limit.

Bearish USDTrade:Fed Cuts Inflation Forecast & Looks to Buy More Time

• Need green, five-minute candle to favor a long EUR/USD position.
• Implement same strategy as the bullish dollar trade, just in the opposite direction.

Potential Price Targets For TheRelease

EURUSD Daily 

• Broader outlook remains tilted to the downside for EUR/USD as a bear-flag unfolds, while the Relative Strength Index (RSI) preserves the bearish formation from earlier this year; lack of momentum to push/close above 1.0660 (50% expansion) raises the risk for a move back towards the 1.0500 (50% expansion) handle.
• Interim Resistance: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)
• Interim Support: 1.0500 (50% expansion) to 1.0517 (December 2015-low)