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FOMC Ends QE as Expected, USD Strength Across The Board OCT. 30, 2014

The Fed Ends QE, Equities Hold Steady on USD Strength

While the Fed did as I expected they also had a hawkish tone to the statement implying rate increases even though they did say it would be slow and rates would remain low for an extended period of time. Instead of creating the risk aversion scenario I expected it created a USD strength environment and my EUR/JPY short I took during the Asian session was promptly stopped out at break even during the London session yesterday. I sure hope that some of you caught the EUR/USD or GBP/USD trades during NY. The EU gave a great entry while the GU gave one well within risk tolerance precisely at the levels I mentioned in yesterdays commentary.

EUR/USD Analysis

With an extended move like we have on the EUR/USD today its questionable what they will do today so keeping an open mind on direction is best. They do have plenty of reason to keep the move down going but may want to push some weak holders out of the market first. The conviction below yesterdays lows is questionable at best so a long from the Asian lows is entirely possible during London today. If I do get long I wont be holding for a longer run and only looking to get twice my risk on the trade. Otherwise the levels for a potential short are plentiful so I will be wanting a good set up and entry while watching for conviction above them showing they will test the next one higher. The Asian highs at 1.2639 are valid but higher risk unless the set up is great. There is a better chance at 1.2652 but if that cant hold they will run to 1.2665 or even 1.2683 before a push down in which I would rather be long looking to take profit on a move that high before the potential turn.


GBP/USD Pushes USD Strength as well

The GBP/USD followed suit with USD strength with the same scenario on direction as the EU yesterday. They seem to think its a bit weaker this morning with the large conviction down but they may also just be absorbing shorts before a shallower pullback to knock them out before the next move down. What I will be looking for during London is the pullback to yesterdays lows with a set up showing the conviction is true before taking the short there since they may want to run stops at the Asian highs before a turn. Otherwise I will be open for the long at the Asian lows and be cautious of any conviction below telling me to get out with a smaller hit if I am long. I should also mention that this drop down below the previous daily lows smells of a thrust move so that increases the probability for the short and true conviction.

GBP/USD 1hr chart

EUR/JPY No Sign of Risk Aversion YET!

The EUR/JPY holding a 63 pip range yesterday is what proves they weren’t avoiding risk but were running on USD strength. There is also the evidence in US equities holding a tight range as well adding to the USD strength scenario. Eventually the risk aversion will kick in but we will never know when. It may be today or a week or two from now. Eventually the big boys will be testing the Fed but probably also know that the Fed needs to get more tools in their box before the next crisis hits. Therefor the probability of the USD strength moves are higher for now anyway.

I will be open on direction on this pair as well today even though the first push up is still valid the probability for a short against it has gone up with no real push yesterday. The 137.89 daily level is still valid for the short but if they want to run stops they will push to yesterdays highs. Otherwise I will be open for the long at 1.3740 while cautious due to it still being in the middle of the first push.

EUR/JPY waiting

Forex News Today

The calendar starts off with UK housing data early today. I dont expect much movement here unless it misses big which is unlikely. Later there is a MPC member speech that could get things moving but since its not Carney the probability of a move is low unless they slip something new into the speech.

Next is German Unemployment data expected to add 5k to the unemployment list. With the large miss last release it seems as they have split the difference so my thoughts are it has a bigger chance for a disappointment. If that does happen it will add to USD strength as well.

During the NY session there is GDP data and Thursday Unemployment claims, of which has been a non event lately barring a big miss so I don’t expect much there either considering Janet Yellen has a speech later on. I expect her to remain hawkish as long as she possible can so this should help push the USD strength for the time being. As for GDP, they have revised it lower but still within their tolerance so is likely to be close. A large disappointment has potential to start the risk aversion move but is doubtful right now.

Happy Trading



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