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Pre-FOMC Price Action Setups (Sept. 19, 2017)

Pre-FOMC Price Action Setups (Sept. 19, 2017)

James Stanley, Strategist

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- This webinar looked at setups using price action ahead of tomorrow’s Federal Reserve rate decision. While there are few expectations for any actual changes in rates, the FOMC may announce the start of balance sheet reduction. The initial stages of the strategy will likely be relatively light as the bank looks to ramp up the process in the coming months/quarters; so an immediate adverse reaction to such an announcement may be a bit of a stretch. However – this does signal the slow removal of monetary accommodation, which could keep markets vulnerable to upcoming exogenous shock factors, such as another flare in the North Korea situation.

- The first market we looked at was the U.S. Dollar via ‘DXY’. The Dollar is finding support at the 50% retracement of the 2014-2017 major move as this year’s down-trend continues. That move lower really seemed to hasten after balance sheet reduction entered the conversation around the March rate hike. The Dollar has given up more than 10% since the morning before that rate hike, and the big question for tomorrow is whether that move extends upon any prevailing announcements. The big driver here appears to be market skepticism around the Fed’s rate hike plans; and if the Fed can instill confidence that a move in December is looking probabilistic, we may finally see the Dollar get some traction.

- We then looked at GBP/USD for short-side USD plays. We’re at an interesting support level in the pair, as we discussed earlier. Repeated tests of that support give the appearance that it may not hold for much longer, but that doesn’t necessarily eliminate the bullish setup in the pair. Deeper support could be sought around 1.3350 and 1.3250.

- We then moved over to USD/CAD. Last week we called USD/CAD a bear trap, and that’s played out so far. But looking at short-term charts, the move higher has shown no evidence yet of abating, so a deeper retracement of the bearish trend might be in order. Potential resistance exists around 1.2400 and 1.2500, and each of these levels can be used for short-side continuation of the longer-term trend in USD, CAD and of course, USD/CAD.

- We then looked at USD/JPY for bullish-USD plays. After breaking below the five-month old range two weeks ago, it looked as though Yen strength may be in order. This was very much driven by jitters around North Korea, but as those worries have receded so have Yen bulls. USD/JPY just re-entered the key zone of support/resistance that runs from 111.61-112.40. A deeper move within the zone opens the door for bullish continuation, with allure around the zone from 110.90-111.15 for higher-low support.

- We then looked at NZD/USD as the pair trades around the .7335 level, again. This is a key Fibonacci level that’s shown multiple iterations of support in the pair; and this can open the door for short-side NZD/USD as another mechanism for USD-strength.

- AUD/USD is having trouble sustaining a move above the .8000 psychological level. I had looked at this setup along with short NZD/USD last week as part of an Analyst Pick. While the NZD/USD side of the set ate a break-even stop, the Aussie setup remains active with stops cast below .7915.

- USD/CHF isn’t all that attractive at the moment, in my humble opinion. But – if we do see USD-strength tomorrow, the .9770 level is huge for this pair, and a top-side break of that resistance opens the door to bullish continuation.

- EUR/USD has finally found some element of respite in the up-trend. But, just like Aussie is having trouble maintaining above .8000, EUR/USD is struggling with the 1.2000 level. Short-term price action shows a range from 1.1800-1.2100, and this can be used for traders looking to gleam a directional bias, with topside breaks opening the door to bullish continuation while short-side breaks open the door for targets at 1.1685-1.1736 (which can then become an attractive zone of longer-term support).

--- Written by James Stanley, Strategist for DailyFX.com

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