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Fed Gives Hit Towards December Rate Hike – October 29th 2015 Market Analysis

October 29
01:01 2015

Part of the statement said the Fed wanted to keep their options open towards a potential rate hike in December. Are they going to raise rates in December? More than likely they will not raise rates in December. The market reacted as if they actually believed the slightly hawkish tone from the Fed though. The price action through the rest of the week will give us more information as to what the market really thinks as the initial reaction is often not accurate. If the market remains heavy through the rest of the week then maybe there is a decent chance a rate hike is being considered. If we see the USD weaken then the market is likely signaling no rate hike as the higher probability. A stronger indication as to what the Fed will do in December is US Equities. As of right now Equities have once again lost all connection with reality and continue to rally as if there was a strong economy in the US (FYI there is not). As long as equities remain strong I think that is the greatest indication of no rate hike being the higher probability.

EUR/USD Takes Massive Dive

Between the Euro and the Pound the Euro definitely took the biggest hit. With the comments from Draghi late last week as well as the comments out of the Fed today it was the perfect storm for another big dive on the EUR/USD. Before the big drop to the downside we did have a valid stop run short but I closed the trade prior to the 2:00 PM Fed Meeting as we our trade management rules. After seeing the market tank you might question exiting ahead of news but it important to not be short sighted. Trading forex news is one way you open yourself up to broker manipulation. While market manipulation is a good thing, broker manipulation is always a bad thing. Lets assume you are short with a valid take profit, most brokers will fill you at your exact take profit. On the other hand lets assume you were long and had a stop loss in place. In that case most brokers would slip you. Therefore you have a guaranteed deficit going into news with most brokers. 

The bank trading strategy is designed to limit major downside as a central goal. I would rather limit some upside if I know for certain I eliminate the potential for a large loss. In trading it is not how much you make but rather it is more often how much you don’t lose that makes you a successful trader. This is how successful forex traders think which is why they are able to trade without blowing up. Additionally, as you develop trade management rules they should be created and/or changed from the perspective of an average of trades rather than one or two. In other words, what happens on one trade really doesn’t mean much. What happens over the course of 100 times of seeing the same scenario is the key point. 

For today I will continue to trade with an open directional bias. Whenever the news is the catalyst for the first push of a potential market cycle I do not consider that to be valid. Economic data and the moves that are created by it have a much higher probability of being retraced.

EUR/USD Chart - October 29th 2015

Pound Continues To The Downside

Today, the Pound was a good example of why we don’t rush into trading with a directional bias.  The trade setup on the Pound was the stop run from the first lower manipulation point we had listed in yesterday’s forex commentary. In regards to short term market direction, this trade was definitely a ‘counter trend’ trade setup. With that being said it still managed to hit a full 4% take profit with an initial 2% risk. Selection of manipulation points is the key to learning to trade forex successfully. It is also what allows us to have trade opportunities regardless of market conditions. 

As of right now the GBP/USD is in the middle of the last daily high and low thus making longer term directional bias a more difficult decision. Given that fact that I don’t trade long term directional bias this is not really much of a concern as the GBP/USD showed today. Like the EUR/USD, the move down today in the GBP/USD was news based and therefore I will keep my short term directional bias open as well. As such, any valid stop run from a pre-selected manipulation point will be considered a valid trade.

GBP/USD Chart - October 29th 2015

Forex News For October 29th 2015

US Advanced GDP q/q 8:30 AM Eastern: This month 1.7 is the expected number. 70% of the time or more the market will reverse the initial spike and push back through pre-release in the opposite direction when a deviation of less than .7 +/- is hit. If you get a 1 point deviation from the expected number then the reversal of the spike is much less likely. 


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