U.S. Session Forex Recap – Mar. 17, 2016

  • Fed officials cut 2016 GDP forecast from 2.4% to 2.2%
  • Fed officials lowered 2016 inflation estimate from 1.6% to 1.2%
  • FOMC: “Global economic developments continue to pose risks.”
  • FOMC median expectations down from four to two hikes this year
  • U.S. crude oil inventories up by 1.3 million barrels vs. 2.9 million forecast
  • New Zealand economy expanded by 0.9% in Q4 2015 vs. 0.7% forecast

Geronimo! The FOMC pulled the rug from under the Greenback’s forex legs when their statement turned out to be less hawkish than expected.

Major Events:

FOMC statement and forecasts – Even though most forex market watchers were already expecting the FOMC to keep rates unchanged for now, the tone of their actual statement pretty much threw strong rate hike expectations out the window. Heck, policymakers even added a line saying that “global economic developments continue to pose risks” just to drive that point home!

In addition, Fed officials decided to downgrade their 2016 GDP forecast from 2.4% to 2.2% and their inflation estimate from 1.6% to 1.2%. Their statement also indicated that business investment has been “soft” compared to their earlier assessment that it “has been increasing at a moderate pace.”

The cherry on top of the dollar bears’ sundae is that the dot plot of interest rate forecasts showed that the median expectation dropped from four to just two hikes this year. Cue businesses and consumers cheering the possibility of having cheaper credit for much longer!

Yellen’s press conference – Fed Chairperson Yellen gave dollar sellers more fuel when she grabbed the mic for her post-statement press conference. She reiterated that the weakness in global growth has changed their outlook significantly, even highlighting the negative impact of the oil price slump on several major and emerging economies.

Market watchers were expecting head honcho Yellen to highlight the improvements in employment but instead she said that these gains are having a minimal effect on inflation. She even went on to say that the Fed has monetary policy tools at its disposal should additional stimulus be needed!

New Zealand GDP – On a more positive note, New Zealand posted an upside surprise with its Q4 2015 GDP reading. The economy grew by 0.9% during the period, outpacing the consensus of 0.7% growth and maintaining its pace of expansion from the earlier quarter.

Components of the report showed that growth was driven by gains in business services, construction, retail trade and accommodation. Agriculture, on the other hand, chalked up a 1.7% drop for the quarter.

Major Currency Movers:

USD – The Greenback sold off across the board, as risk appetite picked up and traders positioned themselves for lower rate hike expectations.

USD/JPY fell to a low of 112.50, EUR/USD popped up to a high of 1.1242 after trading around 1.1050, GBP/USD rallied by nearly 200 pips to the 1.4250 area, and USD/CHF tumbled to a low of .9751.

Commodity currencies – The higher-yielding comdolls took advantage of the jump in risk-taking, a smaller than expected oil inventory buildup, and the stronger than expected New Zealand GDP.

AUD/USD surged from the .7415 area to a high of .7576, USD/CAD plummeted to a low of 1.3094, and NZD/USD soared past the .6700 handle after testing support near .6600. AUD/JPY popped back above 85.00, CAD/JPY is testing the resistance at 85.00, and NZD/JPY reached a high of 75.80.

Watch Out For:

  • 11:50 pm GMT: Japanese trade balance (0.24T JPY expected. 0.07T JPY previous)
  • 12:30 am GMT: Australian employment report (Check out Forex Gump’s trading guide here!)
  • 6:30 am GMT: BOJ Governor Kuroda’s testimony

See also:

Asian Session Recap

London Session Recap

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