Good morning traders.
It´s the big final bout of the year tonight with the FOMC in the ring at 8pm CET. With the stock slump and the Trump dump on the Fed, will Powell pull off a rope a dope or go down for the count?
Whether the Fed comes out dovish, hawkish or a bit of both will set the scene for the USD into the year end and the new year and consequently the eurusd.
According to most analysts it seems at the moment that a dovish stance is being priced in. That is that he will raise tonight and then indicate that they are pausing and data driven as to whether they will continue with further hikes next year.
If this is not the case and Powell comes out swinging and does not back off from more of the same next year this might trigger a strong reaction.
On the other hand if he comes out with no rate hike tonight and suggests rates are on hold next year it could really scare investors that he knows that something is ´up´ with the economy and trigger an equally strong reaction.
This combined with White House pressure and issues of ´independence´ is quite a conundrum for Powell. We will know soon enough.
In the other news if you traded the model strategy I suggested the other week you´d have been up from a short of R2 yesterday. The -13 loss at R1 would have been covered by the +26 from R2.
Once we kick off the new year I will keep a running daily record of the performance of this strategy. I might tweek it first when I review the last quarter to see if we can optimize it a little but at least it will give those of you who can´t be at the charts all day a method that can be applied to suit your circumstances.
The 4 Hour Chart
Instead of posting the Daily chart today I thought it might be more useful to show the levels on the H4 so we can see a wider range should we get any fireworks this evening.
From a macro chart perspective it does look constructive to the upside so if we do get a dovish Fed and particularly if they don´t raise rates tonight, we could see a decent push up.
Whether we will stay much higher is in question in my mind as the response to the Fed might be knee jerk. We have to remember that we are talking about relative positions here and the eurozone has posted a string of negative data points of late and there is no scenario I can think of that suggests the EU is in a strong and solid economic position.
The Hourly Chart
Levels noted as per.
While we wait for the Fed I will be watching the levels and scalp trading based on the (LTF) lower time frames. One point to bear in mind is that while I post these levels as reaction points, they are also levels that prices head for. So if you´re looking at the LTF charts at the London open and it gives you a pattern signal to go long for example as it did yesterday – trade it to the first resistance level and take stock. Vice versa for shorts.
The key point is that levels are reaction points, target points and can be S & R at the same time depending on where price is coming from when they are ´hit´.
Ok, its now a matter of waiting till the bell sounds for Powell to climb into the ring.
Have a good one :).