The elephant in the room – Part 3
Skerdian Meta • 2 min read
Have you ever been in a room with someone wanting to ask them about something that happened to them, but you don´t because it would be too awkward? That´s called the elephant in the room, because it is too big that it sets the mood in the room. The same goes for Wednesday´s FED meeting.
The FED – This week´s FED meeting is probably the most important one in the last three months and probably for the next three months as well. Yellen´s slightly hawkish comments about two weeks ago buried this thing in market´s conscience that the FED would hike the interest rates on Wednesday.
But the US economic data has been really horrible since Yellen´s speech and the interest rate hike odds have plummeted to about 20%. That means that a rate hike is out of question.
But, so was Brexit. The betting companies which coincidentally are based in the UK must have made tons of money back then. The forex market seems to have smelled something fishy, since buyers kept piling on the USD. USD bulls didn´t blink even after the soft US economic data. That makes you think that the market sentiment is positive towards the Buck.
The USD index has kept moving higher despite the soft economic data
We don´t know whether the FED will hike or not, but I somehow feel that the buyers are advantaged compared to the sellers. The price action kept telling us that the forex market jumped on the USD train on every positive economic data while ignoring the disappointing numbers.
That makes you think that the downside in the USD is very limited. That´s why I´m planning to open a short term sell forex signal in EUR/USD and GBP/USD if the FED doesn´t hike. I´ll just wait for the price to move higher to some decent resistance levels in these two forex pairs, before pulling the trigger. After all, the FED is tightening the monetary policy, while the other central banks are loosening it. I´ll update you with these levels on Wednesday before the meeting.
If the FED does deliver a "surprise" rate hike, then the USD will find some decent bids. But the rhetoric in the FOMC statement will decide for the near term future of the USD. If the comments are very dovish and the possibility of another rate hike in the foreseeable future (6 months) gets thrown out of the window, then the positive sentiment might soon turn around. So, plan the exit strategy as well as the entry strategy. We´ll be with you on Wednesday anyway, so we´ll go over the entry and exit levels again.