The Federal Reserve is scheduled for the FOMC Statement and the Federal Funds Rate decision tomorrow Wednesday December 16 at 19:15 GMT (11:15 PST). Currently the interest rate is set to a range of 0 to 1/4 percent.
Once again, expect rates to remain unchanged. The focus tomorrow will be on the FOMC statement. So what should traders look for? Look for changes from the previous statements.
The past statements have been pretty similar. The Committee has stated the economy is sluggish, but stabilizing, and even showing some signs of growth. Expectations have been that inflation will remain subdued for some time. Finally, “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
Expect a similar statement tomorrow as economic activity has not changed significantly. Inflation and federal funds rate expectations from the Fed are likely to remain low for an extended period. A similar statement is unlikely to have too significant of an impact on the markets. It would mean a continuing of loose monetary policy that would result in further weakening of the dollar.
Therefore, if the US dollar strengthens significantly before the statement, then look to sell the dollar. Also, if the FOMC statement is relatively unchanged, but the US dollar initially strengthens afterwards, then look to sell the dollar.
Any changes in the statement, especially regarding inflation and federal funds rate expectations, will be unexpected and significantly move the markets. If the Fed expresses concern over inflation or growth and is looking at the need to tighten any time in the near future, then expect the US dollar to strengthen.
Therefore, if the FOMC statement changes its statement and is concerned with inflation expectations, then look to buy the dollar.
Traders can find the statement once it is released on the following webpage:
http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
CNBC also reads it on air as it is released, which is probably the quickest way to access the information.
Trading the news as it breaks can be extremely difficult under volatile conditions and wider spreads, therefore it is not recommended for most traders. However, there may be opportunities to play the sentiment beforehand, as well as trading the news afterwards. Risk management is critical during these volatile times, so be sure to calculate your risk and have an exit strategy or stop loss prepared.
