The FED’s December Rate Decision is Finally Here, Prepare for a Rough Ride
Eric Furstenberg • 3 min read
As expected, today (Tuesday) was a pretty quiet day in the markets. The forex market can be very frustrating sometimes! For example, I opened a long trade on the AUD/JPY on Monday morning which was supposed to be an intraday trade. The trade quickly went in my favor but reversed just 1.3 pips shy of my target. About an hour later, the same thing happened, but this time it was 1.4 pips. So I just left the trade to run its course. On Tuesday, the pair traded higher again, and guess what, it pulled another ‘allergic to your take profit’ trick, and reversed just 3.5 pips shy of my target – again! So this same ‘intraday’ trade is going for its third day on Wednesday. Hopefully, I will have more luck tomorrow.
If you had some similar experiences in the last few days, don’t break your head over it. This is part of becoming a successful trader. Days like these will temper your patience, and patience is a vital virtue of any master trader.
As you may have noticed, many of the major pairs printed doji candles on Tuesday. Doji means indecision. The market is clearly uncertain about what to expect from the FED tomorrow. Now you might ask why I say so because the probability of a 25 basis points hike stands at 100% according to FED Funds Futures. That might be true, but there are other variables that could trigger immense market volatility like the ‘dot plot’ which conveys policy makers’ expectations for the future path of interest rates. Then there’s the press conference by FED Chair Janet Yellen 30 minutes after the release which carries great importance.
US Dollar Index
US Dollar Index Daily Chart
The US dollar has been pretty directionless over the last couple of days. Not all the major pairs have been trading sideways, however. The USD/CAD has traded significantly lower, and the USD/JPY managed to print a new high (on a daily chart) on Monday. Let’s look at the USD/CAD:
USD/CAD Daily Chart
So why are we looking at this pair in particular? Well, the Canadian dollar has overpowered the US dollar convincingly over the last 12 trading days, where most of the other currencies have either held steady or declined against the US dollar. So, as we head into the FED’s rate decision, this is something we can keep in mind in case the US dollar sells off because of some dovish element(s) in either the FOMC statement or perhaps in the press conference that is to follow. In this case, the Canadian dollar could be the perfect currency to buy against the US dollar. That would mean selling the USD/CAD.
Contrary to the Canadian dollar, the Japanese Yen has been tremendously weak for many weeks already. In fact, I can’t think of any currency that didn’t advance against the Yen during this time. So, if we get a bounce in the dollar as a result of a hawkish outlook by the FED, the Japanese Yen could be the perfect candidate to sell against the dollar. This would mean buying the USD/JPY.
USD/JPY Daily Chart
I had a hard time fitting this massive bullish move into this screenshot 🙂 What a mighty advance indeed! The pair covered close to 1500 pips in about 24 trading days. Although this pair has covered such a large distance already, more upside is certainly possible.
That’s all for today, fellow traders. Remember to be careful on Wednesday, as the FED’s proceedings could spark colossal volatility. Many traders avoid events like these completely. Others greatly reduce their lot size and thereby reduce their risk. Whatever you do, may you profit from it!
Have an excellent trading day!