Fed Interest Rate Decision Looming – Forex Commentary 12/16/15
I just finished posting the month end analysis for November. We had another great month of trading and it illustrates how steady consistent gains is the key to long term success. Earlier last week I posted an article that goes hand in hand with this video. It was an article titled 3 Keys To Becoming A Profitable Forex Trader and it covered a chart of how a $5,000 account can compound to over $375K with a +15.5% account growth each month. Did I just pull the +15.5% growth number out of my….hat? NO. Its the average of the last 6 month end analysis videos. Quite frankly, even if you averaged half of those numbers you would be a full time forex trader in a relatively short period of time. Anyway, go read that article after you watch the November trade analysis video linked below.
EUR/USD Tumbles On USD Strength
As I mentioned in yesterday’s forex daily analysis, the EUR/USD made a beautiful stop run reversal from our one upper manipulation point. Today we had yet another perfect stop run and confirmation setup from the upper manipulation point. Unfortunately, today’s setup never provided enough pullback to get us in the market based on the rules of confirmation entry. Normally I would call today the first push to the downside. Therefore our short term market trend bias would be for a second push to the downside today. The reason I’m going to keep direction bias open is because of the looming Fed rate decision which is probably the biggest news we have had in the past few months. This is the number the market is waiting on and it will more than likely be the catalyst for the next directional move on the long term trend.
In Monday’s FX market analysis I made the case for US Dollar weakness after this news. Its important to state that my opinion means nothing until the price action confirms it. With that being said, here is another reason that supports the USD short bias. Lets assume they do hike rates, I believe the potential for the hike is already priced in and therefore a ‘buy the rumor, sell the news’ type scenario becomes the higher probability in my opinion. The fact is, even if they do hike rates the market already knows it will be a one and done rate hike than it likely to get reduced on any signs of more economic slowdown. As a result there is no longer a reason to buy USD expecting further hikes. On the opposite side, lets assume they leave rates unchanged. In that case we will see a major weakening in the USD as everyone gets out of the USD long they held in expectation of the rate hike. Either way I feel the higher probability is USD weakness. As I always say, I’m not a fundamental trader and therefore I will still need to see a valid stop run of a high probability manipulation point to trigger an entry.
Today, I have one upper manipulation point and 2 lower listed levels from which I would consider a long setup on a proper stop run.
Pound Follows The EUR/USD Down
During the NY Session we had a beautiful stop run of our first upper manipulation point. Much like the EUR/USD the Pound took off to the downside and never made a deep enough pullback after the confirmation candle to give us the entry. Without the proper pullback we cannot achieve the proper reward to risk ratio that makes the bank trading strategy so profitable. While its always tough to see two beautiful setups run off without you, its important to remember that the more important factor is consistently trading your plan without deviating.
Today, like the EUR/USD, I will continue to trade with the open directional bias ahead of the rate decision. Also like the Euro, I have one upper manipulation points and two lower levels from which I would consider a trade if a proper stop run and confirmation were to occur.
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Forex News For December 16th 2015
German Flash Manufacturing PMI m/m 3:30 AM Eastern: There is one spike about 9 months ago that was over 15 pips. Since then this has been a dud and therefore I would still hold a trade going into this news. The only exception would be if the trade was negative at the time of the news. If your 5-10 pips down then the likelihood of normal spread widening closing you out is a real possibility and therefore closing out ahead of the news is the better option to be safe. This month 52.8 is the expected number.
UK Claimant Count Change & Average Hourly Earnings 4:30 AM Eastern: This is a big market mover and therefore one that I would not carry a Pound trade into. This month Count Change is expected at .75 and Hourly Earnings is expected at 2.5%. As I have stated before with this news, Hourly Earnings tends to be the number the market is paying attention to right now. If they deviate in opposite directions earnings will likely win the battle.
US FOMC Federal Funds Rate 2:00 PM Eastern: As I described above, I feel like the highest probability is leaning heavily towards US Dollar weakness regardless of the outcome. The only exception to this would be Yellen coming out with a major Hawkish tune. She would have to allude to future rate hikes in the near future, in which case US Dollar strength would be very much alive and well.