The Weekly Update: The Fed Monetary Policy December 2015

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Fed Monetary Policy Trading Strategy

The Fed monetary policy this week will seize most of the attention this week in global markets. Reports that the People’s Bank of China (PBOC) will loosen the peg of the Yuan to the US Dollar (USD) weakened the US Dollar but it then became clearer that the PBOC may peg the Yuan against a basket of currencies.

Due to EURUSD recent gains the Fed have room for a rate hike, however, it has been fully priced-in by the market. What will determine USD trend in the Forex market is the accompanying statement and the press conference. Yellen denied there will be some form of mechanism for rate hikes (referring to reports the Fed will hike rates every quarter in 2016). We are still not convinced the Fed will hike rates as expected but we cannot ignore the pricing-in. The annual Santa-Clause-Rally will only be triggered if the Fed will not hike rates or if the rates are hiked and the Fed hints the rates will not be hiked again for some time.

USDJPY Daily Chart

Please click on the chart to enlarge:

USDJPY Daily Chart 13/12/15

USDJPY Daily Chart 13/12/15

In our prior trading strategies we have decided not to enter USDJPY as we wished to receive a better price. The market did not provide us with the desired level and was sold throughout the week. Top Head-And-Shoulders (H&S) has materialised as seen on the daily chart, We many not have an entry today but should there be any corrective gains ahead of the Fed monetary policy we may decide to take a short trade in the currency pair, preferably close to the lower black line.

EURUSD Daily Chart

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EURUSD Daily Chart 13/12/15

EURUSD Daily Chart 13/12/15

EURUSD has painted reversed H&S on the daily chart, which is also inline with our medium-term projections for the currency pair. The price reached the 200 Moving Average (MA, in pink) resistance while we have noted a potential for a second higher high and higher low, which may mean the third bullish wave will be strongest. The pair may be held in a range until the Fed announces its monetary policy, which is why we hope to receive a better entry in EURUSD (lower price). The real question is whether 1.0935 is strong enough to hold any re-tests should they occur. We will wait for the opening price and decide whether the trade can be taken today or perhaps wait for Monday’s daily close. Our target would be 1.1410.

Dow Jones 30 Weekly Chart

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DJ30 Weekly Chart 13/12/15

DJ30 Weekly Chart 13/12/15

DJ30 (MARCH 16) has been held in a range since November 2015. The bearish breakout below the support indicated a downtrend is expected but the current range may suggest another rebound before a resumption of the downtrend. DJ30 is a volatile index, the entry must be well-timed as we do not wish to use an excessively large stop. An optima entry would be near 17,043 or even below. As the Fed is likely to be the trigger we are setting the target above the initial resistance at 18,030.

EURUSD and DJ30 are currently providing the most attractive entry at current levels, however, we are still debating whether we should wait for Monday’s close before considering a long trade. We are also aware of our market exposure in GBPAUD, the opening price is currently much lower than we have anticipated. Our goal is to maintain a marginal distance from our entry before the Fed monetary policy announcement on Wednesday as regardless of the Fed’s decision a whipsaw reaction may be seen.

If we decide to enter today we will email the trade alerts’ details after 22:00 GMT. The DJ30 will open to trading at 23:00 GMT.

EURUSD Trade Alert Details

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EURUSD Daily Chart II 13/12/15

EURUSD Daily Chart II 13/12/15

We have decided to opt for EURUSD long trade. The 1.0935 support may be re-tested but there is no guarantee such a re-test will take place.

EURUSD long at market price (1.0984)
Take profit: 1.1410
Protective stop: 1.0855
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 7 days

DJ30 Trade Alert Details

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DJ30 Weekly Chart II 13/12/15

DJ30 Weekly Chart II 13/12/15

This was a fairly tough decision as the protective stop must be placed deep below 17,043 a shown in the chart. We highlight this is not a tight stop but we decide to opt for the long trade.

DJ30 (March 2016) long at market price (17,182)
Take profit: 18,030
Protective stop: 16,890
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 14 days

14/12/15 UPDATE: DJ30 is trading at 17,278 at the time of this writing.

Please click on the chart to enlarge:

DJ30 Weekly Chart 14/12/15

DJ30 Weekly Chart 14/12/15

We are closing 20% of the long trade at market price. We are not shifting the stop to the entry due to insufficient distance from the market.

15/12/15 UPDATE: DJ30 is trading at 17,381 at the time of this writing, almost +200 points profit.

Please click on the chart to enlarge:

DJ30 Weekly Chart 15/12/15

DJ30 Weekly Chart 15/12/15

We are closing 10% of the long trade at market price.

15/12/15 UPDATE II: DJ30 is trading at 17,510 at the time of this writing.

Please click on the chart to enlarge:

DJ30 Weekly Chart II 15/12/15

DJ30 Weekly Chart II 15/12/15

Although we would prefer having a greater distance from the market, we are closing 30% of the long trade at market price and shift the protective stop to the entry.

(Note: We did not take a screenshot of the chart in time, which is why it showing a higher price)

15/12/15 UPDATE III: As we were able to reduce our market exposure we are opting for USDJPY following the recent gains in the currency pair.

The price is still short of the latter resistance but the 44MA (in pink) may hold. We should highlight that if the 44MA fails to contain the gains we may incur +100 pips (approx.) drawdown until the latter resistance is tested. By the book the trade requires a stop of +200 pips but we are attempting to use a tighter stop.

USDJPY Trade Alert Details

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USDJPY Daily Chart 15/12/15

USDJPY Daily Chart 15/12/15

USDJPY short at market price (121.65)
Take profit: 116.90
Protective stop: 123.36
Risk Ratio (RR): 1 : 2.8 (approx.)
Estimated duration: 7 days

16/12/15 UPDATE: DJ30 is trading at 17,633 at the time of this writing.

Please click on the chart to enlarge:

DJ30 Weekly Chart 16/12/15

DJ30 Weekly Chart 16/12/15

We have decided to close the trade at market price, finishing the trade with a decent profit.

17/12/15 UPDATE: EURUSD triggered the protective stop of the long trade after trading with a minor profit during Fed Yellen press conference. A new entry has presented itself.

EURUSD Daily Chart

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EURUSD Daily Chart 17/12/15

EURUSD Daily Chart 17/12/15

As you may see the reversed H&S remain intact. We suspect the trigger will be the end of year fixing or the Spanish elections results on Sunday.

EURUSD long at market price (1.0830)
Take profit: 1.1070
Protective stop: 1.0742
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 7 days

Aside EURUSD we have also noted a long entry in AUDUSD.

AUDUSD Daily Chart

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AUDUSD Daily Chart 17/12/15

AUDUSD Daily Chart 17/12/15

Strong support is noted in AUDUSD daily chart while the weekly reversed H&S is intact. The trend is inline with our projections for a weak US Dollar. We are aware that by taking the long trade our exposure to the US Dollar will substantially increase.

AUDUSD long at market price (0.7122)
Take profit: 0.7414
Protective stop: 0.7039
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 14 days

18/12/15 UPDATE: The BOJ announced the extension of JGB maturities, which forced a short-lived spike in USDJPY as well as the Nikkei225. The spike triggered numerous stops, which boosted the gains in the pair. We suspect many stops were layered between the 2 resistance levels (in black) as shown in the strategy. We did consider the possibility of such a scenario, which is why we wrote a +200 pips stop is required but we were under the impression our protective stop will hold.

Please click on the chart to enlarge:

USDJPY Daily Chart 20/12/15

USDJPY Daily Chart 20/12/15

After the stops were triggered the price has reversed lower, leaving the technical structure intact. This is a very unfortunate scenario as we are certain the stops fuelled the spike but such scenarios are unavoidable. We have been informed that several traders were aware the resistance is holding and re-entered the pair.

18/12/15 UPDATE II: In regards to EURUSD and AUDUSD, as anticipated, USD weakness began in today’s session and is expected to resume at the beginning of next week. As this is a daily entry we can already shift the stop to the entry in AUDUSD as a sufficient market distance has been acquired.

Please click on the chart to enlarge:

AUDUSD Daily Chart 18/12/15

AUDUSD Daily Chart 18/12/15

AUDUSD is trading at 0.7186 at the time of this writing, we are closing 10% of the long trade at market price and shift the protective stop to the entry

EURUSD is trading at 1.0863, no action is taken,

21/12/15 UPDATE: AUDUSD is trading at 0.7185 at the time of this writing.

Please click on the chart to enlarge:

AUDUSD Daily Chart 21/12/15

AUDUSD Daily Chart 21/12/15

We are closing 10% of the long trade at market price and shift the protective stop to 0.7137.

21/12/15 UPDATE II: EURUSD is trading at 1.0918 at the time of this writing.

Please click on the chart to enlarge:

EURUSD Daily Chart 21/12/15

EURUSD Daily Chart 21/12/15

We are closing 30% of the long trade at market price and shift the protective stop to 1.0834.

22/12/15 UPDATE:  EURUSD reached a minor resistance levels that could develop into top H&S, which is why we are more aggressive with EURUSD partials’ realizations.

Please click on the chart to enlarge:

EURUSD Daily Chart 22/12/15

EURUSD Daily Chart 22/12/15

EURUSD is trading at 1.0950 at the time of this writing. We are closing 20% of the long trade at market price and shift the protective stop to 1,0889.

22/12/15 UPDATE II: AUDUSD is trading at 0.7230 at the time of this writing.

Please click on the chart to enlarge:

AUDUSD Daily Chart 22/12/15

AUDUSD Daily Chart 22/12/15

We are closing 10% of the long trade at market price and shift the protective stop to 0.7172.

23/12/15 UPDATE: EURUSD triggered the protective stop that was shifted above the entry, ending the trade with a decent profit.

23/12/15 UPDATE II: AUDUSD is trading at 0.7228 at the time of this writing. We are closing 10% of the long trade at market price and shift the protective stop to 0.7189.

29/12/15 UPDATE: AUDUSD is trading at 0.7294 at the time of this writing. We are shifting the protective stop to 0.7250.

05/01/16 UPDATE: AUDUSD triggered the protective stop loss order that was shifted above the entry, ending the trade with a decent profit.

The Weekly Update: The Fed Monetary Policy December 2015
As all trades are closed this page can now be accessed by all traders. Open trades are restricted to members only. We have been providing trade alerts in the Forex market since May 2014.
The Weekly Update: The Fed Monetary Policy December 2015

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The Weekly Update: The Fed Monetary Policy December 2015

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The Weekly Update: The Fed Monetary Policy December 2015