Prepare For Turbulence! The FOMC, BOJ, and RBNZ Are Here
Eric Furstenberg • 3 min read
Where there is market volatility, there is money to be made. None of us love dead market conditions. Excessive volatility can make trading tricky, however. I have seen a lot of whipsaw at previous FOMC meetings – uncontrolled, jerky price action that can easily throw you off like a wild rodeo bull gets rid of an unwanted rider. Let’s look at the weak and the strong among the major currencies.
Although it was a rather quiet day in the forex market, there was one major currency that particularly displayed some weakness, that is, the British pound. A few days ago it looked like we would break out higher on the GBP/USD. The pair made a solid attempt at the recent range highs but was slammed at the resistance. Then, on Friday, the pair declined by a massive 240 pips which confirmed that the bears were in control again. At the moment it seems like the yearly lows could come into play soon. Let’s look at a few charts:
GBP/USD Daily Chart
At the moment the pair is trading firmly below the 20-day exponential moving average, and the recent bullish momentum is clearly something of the past. The exchange rate is quickly approaching the double bottom displayed on the chart above, which is also where the yearly low is situated. This is definitely an important support zone.
If we get some hawkish rhetoric from the FED tomorrow, surely there could be a further decline in the GBP/USD. If we get a hawkish stance coupled with a surprise rate hike, this pair could take a major knock. This could take us past the yearly low in only a few hours, or even minutes. The British pound has been a victim of some Brexit related headlines recently, which has put quite a bit of strain on the currency. I would say that if the US dollar finds a bid tomorrow, the GBP/USD might be a splendid pair to play on the short side.
This pair also took a knock today, perhaps we could get a close on a daily basis below the 200-day moving average soon. At the moment the price is a mere 7 pips from this very important moving average. Look at the following chart:
EUR/USD Daily Chart
Although the pair has been trading very much sideways for many months already, it looks like we could see some more downside over the next few days. Don’t expect a move of thousands of pips, but consider that the pair is clearly showing symptoms of the bear-flu.
I have not written much about this pair recently because of the frustrating range it’s been trading in lately. Tomorrow we have the BOJ’s (Bank of Japan’s) interest rate decision, their policy statement, and a press conference. This could absolutely spark some powerful exchange rate moves. Let’s look at a daily chart:
USD/JPY Daily Chart
As you can see, this pair is caught up in a very narrow range. Despite all the range-bound price action of the last couple of days, tomorrow’s central bank meetings will most probably catapult the pair out of this range. In which direction it will break is difficult to tell. The big 100 psychological level has been a rock solid support level. The price has made some aggressive bounces off of it lately, and it should prove to be a difficult support zone to break through. The Bank of Japan is trying to stimulate their economy, and they don’t want a strong currency. The Fed, on the other hand, is in the process of tightening the reins. If we get a hawkish Fed tomorrow, and a dovish BOJ, the USD/JPY could have a lot of fuel to drive it higher.
The US dollar was relatively strong today, but the Australian dollar was even stronger and gained about 20 pips against the Greenback. I wouldn’t get excited about the long side on this pair, however, because the 20 EMA is currently resisting the price, and the recent bounce looks like it was only a correction. If the US dollar catches a bid tomorrow it might be relatively stronger than the Australian dollar. This could cause an impulsive bearish leg on the AUD/USD. Here is a daily chart:
AUD/USD Daily Chart
Be careful with all the heavy fundamental catalysts tomorrow.
Good luck with your trading!