Tchitchikov
Short

FOMC Setup on EUR/USD

FX:EURUSD   Euro / U.S. Dollar
The Federal Open Market Committee (FOMC) is expected to unveil another rate hike this Wednesday, December 19th 2018. Probability of a rate hike is quite high, as a neutral or easing federal funds rate would indicate "a need for stimulus" in the U.S. economy (God forbid the FED indicates weakness in the economy while the stock market is sitting just above critical support). A rate hike is an indication of tightening monetary policy , which fundamentally strengthens the dollar against other currencies. This will produce a down move on the EUR/USD (want to sell EUR for USD).

If rates remain neutral (unlikely), expect the dollar to weaken considerably (up move on EUR/USD ).

If rates are lowered (unlikely), expect the dollar to weaken quite rapidly (up move on EUR/USD ).

FED indicated a dovish approach to 2019 rate hikes in their press conference and has since repeatedly stated that they will be "patient" with rate hikes, and will remain "flexible" on adjusting their balance sheet, aka, outright buying bonds and stock. Short term (30 minutes to a few hours after 2:00pm EST, December 19th), this trade played out as expected; however, the dovish nature of Powell's forward guidance for 2019 warranted an early exit. Further softening of FED policy, and the rising potential for QE4 has opened the possibility of a weakening dollar for 2019.
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