How EURUSD Reacts to Non-Farm Payrolls

Trading the Fed meeting is always difficult because in addition to a decision on rates, the tone of the FOMC statement also affects how the dollar trades. Rather than immediately jumping into the market after the announcement, I have found that in 11 out of the last 14 times that the Federal Reserve has met, the move in the EUR/USD during the U.S. trading session continued into the Asian and London sessions. More specifically, the dollar’s move between 2:15pm and 4pm NY time tends to follow through from 4pm to 12pm EST (noon) the following day. The table below illustrates the reaction in the EUR/USD from 2:15 to 4pm on FOMC day and from 4pm to 12pm EST the next day. For forex traders that may not know how to interpret and trade FOMC, this suggests that it may be better to wait and see how the market reacts before jumping in because continuation is very likely.

What are the Fed’s options?

1. A dovish statement that reinforces Bernanke’s recent concerns > initially dollar bullish

2. Dovish statement with talk of more QE (ie. Balance Sheet expansion), but not actually doing it > slightly dollar bullish

3. Dovish statement, reinvest MBS proceeds > dollar bearish

4. Dovish statement, expands balance sheet (ie. additional QE) > very dollar bearish


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