12 Dec 2014
FOMC will be a key event for EUR/USD – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, notes that FOMC will be a key event for the EUR/USD pair as markets expect Fed Chair Yellen to counter ‘considerable time’ by strong wording signalling caution ahead, which might help to limit the dollar demand after the aftermath of the announcement.
Key Quotes
“The last euro-specific event risk has just passed – the TLTRO auction result – which was disappointing at a mere EUR 129.8bn. Combining this figure with the September take-up the EUR 213bn total was close to only 50% of what the ECB originally estimated as the potential take-up total. This obviously raises uncertainties over the take-up at the six auctions each quarter from Q1 2015 through to Q2 2016.”
“As stated in the piece above, the TLTRO result only reinforces the likelihood of a sovereign debt QE program being announced on 22nd January.”
“The key event for EUR/USD next week will of course be the FOMC statement and press conference by Fed Chair Yellen. The market is now well positioned for a change in communication with “considerable time” being dropped and possibly replaced by something like “patient” as a signal of how the FOMC will respond to continued improving economic data. We assume that whatever the wording, Chair Yellen and the FOMC will ensure the dropping of “considerable time” is countered with strong wording signalling caution ahead. That may help to limit dollar demand in the aftermath of the announcement.”
“Chair Yellen should also use the press conference to hammer home the scope for slow gradual rate increases given the disinflationary environment stemming from falling oil prices. Assuming success in this communication, we hold a neutral bias for EUR/USD in the week ahead.”
Key Quotes
“The last euro-specific event risk has just passed – the TLTRO auction result – which was disappointing at a mere EUR 129.8bn. Combining this figure with the September take-up the EUR 213bn total was close to only 50% of what the ECB originally estimated as the potential take-up total. This obviously raises uncertainties over the take-up at the six auctions each quarter from Q1 2015 through to Q2 2016.”
“As stated in the piece above, the TLTRO result only reinforces the likelihood of a sovereign debt QE program being announced on 22nd January.”
“The key event for EUR/USD next week will of course be the FOMC statement and press conference by Fed Chair Yellen. The market is now well positioned for a change in communication with “considerable time” being dropped and possibly replaced by something like “patient” as a signal of how the FOMC will respond to continued improving economic data. We assume that whatever the wording, Chair Yellen and the FOMC will ensure the dropping of “considerable time” is countered with strong wording signalling caution ahead. That may help to limit dollar demand in the aftermath of the announcement.”
“Chair Yellen should also use the press conference to hammer home the scope for slow gradual rate increases given the disinflationary environment stemming from falling oil prices. Assuming success in this communication, we hold a neutral bias for EUR/USD in the week ahead.”