A Strategy To Trade The Next Fed Annoucement

Readers of our service were alerted this morning that we were “buying the rumor”
of a well-discounted Fed hike in the London session and prepared for a “sell the
fact” reaction in New York after the decision.

We bought USD/CHF at 1.2555 this morning and moved stops up to this level after
London did “buy the rumor.” We then scalped some profits and used that to
repurchase on the “sell the fact,” again placing stops at the original 1.2555
entry level.

Overall the dollar was little changed by the news, but this belies the technical
landscape that is important to watch. Specifically, a daily close above 1.2585
today will register a bullish daily reversal.

Moreover, because of the steep downtrend line from the July 26 highs in USD/CHF
at 1.3060, tomorrow’s daily candlestick will open to the outside of this
trendline resistance at 1.2590 (87.90 in USDX).

That means traders still have a low risk opportunity to position long USD/CHF
with tight stops just below today’s low of 1.2540 for a contrarian trade setup.

Similarly, traders could go short EUR/USD around 1.2380 with stops just above
key resistance at 1.2400. But it will take a move below major support at 1.2340
to see further selling pressure this week — and for us to add to any dollar
longs. Recall that our initial purchase was only nibble with 1/3 of a full
position.

Whatever the case, the existence such a tight range in market inflection points
means that these kind of trades present very clearly defined risk reward entry
levels to go against the trend — for day traders and position traders alike.

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