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Fed Preview: Five things that will determine the dollar’s direction

1) Dovish bias

Given stagnant inflation and slowing wage growth, Powell is likely to confirm his approach. In this case, it would be mildly dollar negative. In the unlikely scenario that he abandons this bias, the dollar has room to shoot higher.

2) Is growth good enough?

The tone on growth has an additional purpose – serving as a clue towards Thursday’s first release of GDP for the fourth quarter. Powell, as well as a few other privileged top officials, have early access to the figures. Any hint may not only have an immediate impact on markets but could also shape expectations for the following day’s publication.

3) Any dissents?

Several voting members have dissented from supporting the Fed’s rate cuts in 2019. Esther George, President of the Kansas City branch of the Federal Reserve, and Eric Rosengren, her peer from Boston, both objected to the rate reductions. And in September, James Bullard, their peer from the Saint Louis Fed, voted for slashing borrowing costs by a double-dose of 50 basis points.

The voting composition changes every year and it will be interesting to see if Powell managed to unify the Federal Open Markets Committee (FOMC) around the stance of the long pause. Recent statements suggest that all are on board.

If one member surprises and supports a rate hike, the dollar may advance while a dovish dissent could send the dollar falling. Both phenomena would be surprising given the recent statements.

4) Is the labor market losing momentum?

The last year of the decade saw a drop of 21% in net job creation in comparison to 2018. Zooming out to the full decade, it was one of the slowest years, ranked eight. Wage growth decelerated in December to 2.9% yearly the first drop below the 3% mark since mid-2018.

Will Powell see the glass half full or half-empty? The bank has been upbeat on the labor market, so repeating this positive stance is unlikely to move markets. In case the Fed is worried about the most recent trends, the greenback may drop.

5) Happy with trade?

The Washington-based institution cited trade uncertainty – stemming from their neighbors in the American capital – as one of the reasons for cutting rates. After the US and China signed the trade deal, markets expect the Fed to acknowledge this development and express optimism.

Conclusion:

While the Federal Reserve is set to leave its policy unchanged in its first meeting of 2020, five topics are high on the agenda for markets. These are the bias on interest rates, the approach toward growth, dissents within the FOMC, comments on the labor market, and on trade.

https://www.fxstreet.com/analysis/fed-preview-five-things-that-will-determine-the-dollars-direction-202001230935

According to Trading Central (3rd party RIA) the EURUSD could be heading DOWN to 1.0880 if it does not go ABOVE 1.1160

* Past performance is not a guarantee of future performance

https://europefx.tradingcentral.com/Product?PK_ANALYSE=10591006

Number of Lots: Required Margin: Risk Management (200%): Potential Profit/Loss 1.0880
1 € 3,333.33 € 6,666.67 € 1,181.18
5 € 16,666.67 € 33,333.33 € 5,905.90
10 € 33,333.33 € 66,666.67 € 11,811.80
25 € 83,333.33 € 166,666.67 € 29,529.50
50 € 166,666.67 € 333,333.33 € 59,059.00

According to Trading Central (3rd party RIA) the GBPUSD could be heading DOWN to 1.2760 if it does not go ABOVE 1.3275

* Past performance is not a guarantee of future performance

https://europefx.tradingcentral.com/Product?PK_ANALYSE=10591008

Number of Lots: Required Margin: Risk Management (200%): Potential Profit/Loss 1.2760
1 € 3,941.04 € 7,882.08 € 2,271.50
5 € 19,705.21 € 39,410.42 € 11,357.50
10 € 39,410.42 € 78,820.84 € 22,715.00
25 € 98,526.05 € 197,052.10 € 56,787.50
50 € 197,052.10 € 394,104.20 € 113,575.00

Important Notice!

As of 1 February 2020, “EuropeFX” is no longer a Corporate Authorised Representative (“CAR”) of Union Standard International Group Pty Ltd (“USG”), which holds an Australian Financial Services License (“AFSL”) # 302792.

As of 1 February 2020, “EuropeFX” is no longer a Corporate Authorised Representative (“CAR”) of Union Standard International Group Pty Ltd (“USG”), which holds an Australian Financial Services License (“AFSL”) # 302792.

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