Calm Before The Storm: EUR/USD
Dave Green • 2 min read
The FED moves markets, pure and simple. This afternoon's scheduled announcement at 2:00 PM EST will be no different.
Traders are well advised to protect themselves against the onslaught of short-term volatility. An unexpected FED comment can send a jolt through markets around the globe. Be sure to have protective stops on all open positions.
It seems like every policy meeting of the U.S. FED is surrounded by controversy. Recent comments by President Trump have hinted at the replacement of Janet Yellen, the FED’s current chairperson. Trump has alluded to his administration’s Economic Council head Gary Cohen as being the frontrunner for the job.
Yellen’s term expires in February of 2018. Is it possible that the FED will become aggressive as her tenure ends? Traders are well advised to pay close attention to the tone of today's comments.
What To Expect
The consensus among analysts is that the FED will hold rates at the current level of 1.25%. The markets seem to have already accounted for this notion. Currently, traders are taking a “wait and see” approach across many asset classes.
Perhaps the most important aspect of today’s report will be comments made by the FED regarding their balance sheet. Several FED governors have implied that they are ready to begin the “unwinding” process.
“Unwinding” can mean many things, but the focus will be on exactly when the FED will unload a massive quantity of T-bills on the open market.
Pre-FED Look At The EUR/USD
Trading on the EUR/USD has been quiet ahead of the FED’s announcement. New Home Sales came in 0.8% below projections, generating little interest.
EUR/USD 30 Minute Chart
So far this session the EUR/USD has posted a 43 pip range. An overnight test beneath Tuesday’s low of 1.1630 showed unsustained weakness.
Tight markets are tough to trade. A value area has been established between today’s high of 1.1655 and low of 1.1612. The key psychological level of 1.1600 may come into play upon the data release.
The best plan of attack is to wait for the market to digest the FED’s comments. A rotational play from a post-announcement extreme towards today’s value area (pre-release range) is a safe way to trade the news.
Remember, "caution" is a good word. It is not what you make but what you don’t lose.