Three Keys For Actively Trading FED Week
Shain Vernier • 2 min read
Heavy selling has defined the early Monday U.S. session. Both the DJIA and S&P 500 are down big, 200 and 20 points respectively. Breaking news over Brexit in the U.S. overnight has prompted investors to reevaluate their stance toward stocks and currencies. Thus far, it is a mixed bag for the USD across the majors.
It is FED week, so many scenarios are currently on the table. The financial media is widely reporting a rate hike for Wednesday as being a foregone conclusion. Traders and investors agree. A 93% chance of a 25 BPS rate hike is currently being assigned by the CME FedWatch Index.
When the FOMC and FED get together, anything can happen. However, the currency markets do exhibit several tendencies that are fairly consistent during scheduled meetings. Here are a few things to remember as you engage the forex this week:
- Beware of the calm before the storm. In the lead up to the FED Announcements at 2:00 PM EST Wednesday, most of the forex major pairs will enter consolidation. This is completely normal and the result of traders not wanting to hold open positions into the announcements.
- Expect the unexpected from media coverage. It is not uncommon for a contrarian view of a coming FED release to gain traction ahead of the actual announcement. An element of doubt always exists — be ready for news stories that question the consensus view of Wednesday’s rate hike.
- No matter what the FED’s decision is, volatility will skyrocket in the aftermath. Always remember that participation enhances order flow and volatility. As large numbers of orders hit the market, more are attracted. It is a chain reaction that spikes pricing volatility.
The odds of the FED target rate being raised on Wednesday are overwhelming. My opinion is in step with the consensus — a rate hike is a done deal.
As short-term traders, whether or not the FED becomes aggressive or holds steady is of little matter. What is important is how we handle the coming storm. Have your stop losses down, leverage in check, and an eye on opportunity!