FOMC meeting: between a rock and a hard place

The  US  Federal Reserve is undergoing its two-day economic policy meeting, a "live" one, as officers have repeated ad nauseam ever since the release of FOMC's April Minutes, suggesting it could be the right time for the so long awaited first rate hike of this 2016. The dollar soared in anticipation of the announcement, yet a horrid May employment report triggered an u-turn in markets' sentiment towards the FED and the greenback. 

Despite the poor data, Yellen & Co. have continued saying that a rate hike could be "appropriate." Or better said, that two rate hikes this year would be appropriate, putting one rate hike on the table for this summer, but also keeping it data-dependent. 

Let's take a look at the May Nonfarm Payroll report: the headline reading was extremely disappointing, showing that the economy created just 38,000 new jobs that month. Part of such huge decline was blamed on Verizon's strike, which reduced last month’s payrolls figure by about 35,000 according to the US Labor Department. Without the strike, the job's report would have printed something below 80,000, which is still too low. Also, the unemployment rate fell to 4.7% but that came by the hand of a decline in the labor force, down to 62.6%, the lowest in near forty years. Weekly unemployment claims, on the other hand, have been printing some encouraging readings, steadily below 300K and with the 4-week average down to 269,5K last week. Still, these data is far from enough to convince the FED to hike rates tomorrow. 

Now, Yellen stands between a rock and a hard place: Would she raise rates and risk an economic slowdown? Or would she risk FED's credibility? Because, let's be honest, all of the FED members have been working really hard to pre-announce a rate hike this June, until the release of May's Payrolls of course. Guess their intention was to prevent violent market's reaction, particularly in Wall Street, and have most of it priced in when the date shall come. 

Anyway, as I said earlier this week, the FED can do whatever it wants. At this point, a 0.25% rate hike won't change much the economic situation, but will fuel confidence in the world's largest economy Central Bank. If they refrain from acting, on the other hand, the greenback will suffer more from distrust in the FED than from how a delay in the rate hike may affect the economy. The FED is at risk of becoming a joke, and is yet to be seen if they are ready to pay such price. 

And still, everything points to an on-hold stance, with September now considered a probable date for a move. Should that be the case, the American currency will probably plummet across the board. But if the FED raises rates it will probably be a bigger shock, with the greenback running sharply higher against all of its major rivals.  

Whatever the Bank decides, it's guaranteed it will be a quite interesting US afternoon. Worth remembering, the BOJ will meet some 12 hours after the FED, which means the USD/JPY could see some wild moves during the upcoming two days, but won't be able to settle a clear direction until after BOJ's announcement. 

EUR/USD technical outlook, levels to watch 

The EUR/USD pair is breaking through the 1.1200 figure, standing roughly 50 pips away from the pre-Nonfarm Payroll level around 1.1140. The pair is looking quite bearish in its daily chart, given that the sharp decline seen this Tuesday is driving the price below the 20 and 100 DMAs, both around 1.1230/40. Technical indicators in the mentioned time frame have turned sharply lower, but well, the FED is never about technical readings. 

Should the FED raise rates, the immediate bearish target is a daily ascendant trend line coming from November 2015 low, currently around 1.1130, followed later by May's low of 1.1095. Below this last, the pair should keep on falling towards the 1.1000  key psychological level. 

If the FED smashed the greenback, the 1.1235 region is the immediate resistance, with a break above it resulting in a quick advance up to 1.1290, the 38.2% retracement of May's decline, followed then by the 1.1330/50 region.