The Weekly Update: Will the Fed Hike Rates on Thursday?

FOMC Trading Strategies

We have stated on multiple occasions the Fed is unlikely to hike rates in September. It now appears there are expectations for the Fed to lower the Gross Domestic Product (GDP) projections, which will in turn may have a negative effect on the US Dollar (USD).  The FOMC statement is due on Thursday (17 September) at 18:00 GMT.

Randomly shorting the US Dollar is not a wise decision. There can be many obstacles by simply relying on the Fed monetary policy. One of the greatest risks is that traders that shorted the US Dollar last week would cut their exposure, which may lead to a strong USD ahead of Thursday. For that reason we are not looking to trade EURUSD. In our previous update we highlighted our intention to long GBPUSD but require a technical confirmation.

After studying GBPUSD chart it appears the potential target for a low trade is approximately +150 pips. As great as it may sound, the Risk Ratio (RR) is extremely poor. On rare occasions we rely on the market fundamentals alone and this is not one of those scenarios. After studying the Forex market we were able to discover two potential currency pairs. We will outline the strategies but we will probably opt just for one currency pair unless the stop for both trades Is extremely tight, which may allow us to take both trades.

USDCAD Technical Analysis

This is our least favourite pair as it forces us to focus on the 4hr chart. However, the RR may be decent if USDCAD gaps higher.

USDCAD 4hr Chart

Please click on the chart to enlarge:

USDCAD 4hr Chart 13/09/15

USDCAD 4hr Chart 13 September 2015

Due to the weak economic data from China it is possible the commodity currencies will open at a weaker price against a basket of currencies. At current levels USDCAD does not provide an attractive trade. However, a gap higher would certainly favour a short position. The optimal scenario is a gap towards 1.3350, which is seen as the initial target of the breakout should it occur. A gap towards the upper resistance of the pennant (in blue) may still be sufficient. The stop must be placed above  1.3350 while the target would be 1.3028. If USDCAD does not gap higher the RR will be dented, which mat lead us to negate from the trade.

NZDUSD Technical Analysis

We will prefer taking NZDUSD as we would also enjoy positive interest on the long trade. NZDUSD suffered from heavy losses following the recent rate cut by the Reserve Bank of New Zealand (RBNZ). Nevertheless, we noted the potential for reversed Head-And-Shoulders (H&S) on the daily chart. We chose to base our entry on the 4hr chart, which is supported by the daily chart.

NZDUSD 4hr Chart

Please click on the chart to enlarge:

NZDUSD 4hr Chart 13/09/15

NZDUSD 4hr Chart 13/09/15

The H&S is already in place in the daily chart. A gap lower is required in order for us to take the trade. The best price would be anywhere within a near proximity to 0.6246. The objective of the reversal is 0.6636. 0.6412 marks the neckline of the reversed H&S while 0.6498 holds a major resistance level that NZDUSD must overcome. If it wasn’t for the FOMC Statement we would have opted for 0.6498 but as we suspect strong USD selling may emerge as a result of the FOMC statement we are opting for a higher target, 0.6550. We remain conservative and not target the 100% objective of the reversal.

It will be down to the gaps at 21:00 GMT. If no gaps are seen it will be quite challenging which currency pair to opt for. Our preference would be NZDUSD but it is not our decision to the make, it is entirely up to the market. The estimated duration for both trades is 10 days however we do not wish to hold the trades beyond Friday as we are attempting to capitalize over the FOMC Statement. The Greek elections are due next Sunday and the setups for USDCAD and NZDUSD are not designed for such an event.

Based on the opening of the market, the trade alert’s details will be sent to you via an email after 21:00 GMT and then updated on this page.

NZDUSD Trade Alert Details

Please click on the chart to enlarge:

NZDUSD Current 4hr Chart 13/09/15

NZDUSD Current 4hr Chart 13/09/15

NZDUSD long at market price (0.6311)
Take profit: 0.6550
Protective stop:  0.6244
Risk Ratio (RR): 1 : 4 (approx.)
Estimated duration: 10 days

Note: We are opting for a tighter stop in NZDUSD. This means we are not allowing NZDUSD to retrace lower and expect the gains to emerge in the Asian session. There is an element of risk to the trade as we are opting for a tighter stop but we are adjusting our strategy to the market. We are aware of the risk and are willing to take it.

16/09/15 UPDATE: NZDUSD is trading at 0.6348 at the time of this writing.

Please click on the chart to enlarge:

NZDUSD 4hr Chart 16/09/15

NZDUSD 4hr Chart 16/09/15

Although the break above 0.6338 suggest further gains may be seen we are closing 10% of the long trade at market price.

16/09/15 UPDATE II: NZDUSD is trading at 0.6369 at the time of this writing.

Please click on the chart to enlarge:

NZDUSD 4hr Chart II 16/09/15

NZDUSD 4hr Chart II 16/09/15

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

17/09/15 UPDATE:  NZDUSD is trading at 0.6347.

Please click on the chart to enlarge:

NZDUSD 4hr Chart 17/09/15

NZDUSD 4hr Chart 17/09/15

we are shifting the stop to the entry and close 10% of the long trade at market price.

17/09/15 UPDATE II: We are liquidating more partials off NZDUSD. We are closing another 10% at market price (0.6384).

Please click on the chart to enlarge:

NZDUSD 4hr Chart II 17/09/15

NZDUSD 4hr Chart II 17/09/15

The reason being, if Yellen sounds less dovish the gains will evaporate in matter of seconds.

17/09/15 UPDATE III: We highlight that we have no intention of keeping the trade into weekend due to the upcoming elections in Greece. Although we are not expecting the elections to be a major event we are nevertheless going to by the book. We are closing NZDUSD long trade at market price, 0.6441.

Please click on the chart to enlarge:

NZDUSD 4hr Chart III 17/09/15

NZDUSD 4hr Chart III 17/09/15

We have enjoyed positive interest and a decent profit over the long trade.

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: Will the Fed Hike Rates on Thursday?