Lot of economic releases on the tap today, culminating with the FOMC rate hike decision later
Investors and traders will be looking to a very busy session in the U.S. today as lots of economic releases are in store, which is later followed up by the high impact FOMC rate hike decision. This could potentially keep the U.S. dollar volatile and thus pressure the EUR/USD as well as the equity and bond markets. The U.S. session starts off with retail sales and producer price index data followed by the industrial production and capacity utilization rate.
A few hours later, the FOMC will be releasing its rate hike decision including publishing fresh economic forecasts and rate hike expectations for the next year. There will also be a press conference by Janet Yellen later in the day at 1930 GMT.
It is the day traders have been waiting for since early November
After the U.S. Presidential elections set off expectations of fiscal stimulus sending, inflation expectations have surged, simultaneously boosted by higher oil prices which is expected to push consumer prices higher.
Today's retail sales which is the first of the data sets is expected to show a moderation in consumer spending after rising 0.8% in October. Producer price index data is also expected to show a modest increase on the pace of factory gate inflation.
However, none of this would matter to the markets as the Fed is strongly expected to hike the fed funds target rate by 25 basis points today, bringing the U.S interest rates to 0.75%.
EURUSD closed out in a doji pattern yesterday after Monday's bullish engulfing pattern. This signals indecision among traders and aptly reflects the risks which are equally balanced.
A positive reaction from the markets to the FOMC event could see the euro post further declines in the short term, while a negative reaction could potentially spark a relief rally in the single currency which has remained in a strongly bearish trend.
How to trade binary
In the longer term, EURUSD is expected to rise towards 1.0880 following the near double bottom pattern formed at 1.0550. There is a risk of an extended decline should the euro break down below 1.0550 in which case, price could easily stretch to 1.0400. CALL options are recommended on a test to 1.0588, in which case there is a potential for EURUSD to rally towards 1.0702.
However, failure to reverse near 1.0588 could signal further continuation to the downside, pulling EURUSD lower to 1.0550.
In light of this, wait for EURUSD to dip to 1.0588 and purchase daily CALL’s with the expectation of a bullish close higher on the day with a 21:00 GMT expiry. Traders should note that the FOMC meeting is at 19:00 GMT, just two hours into the day’s closing.
Target price: 1.0588
Expiry: 21:00 GMT