Here’s my strategy for the Fed announcement
While the FX universe has a number of major
pairs and numerous secondary symbols to trade, I personally confine 90% of my
action inside just two: the GBPUSD and EURJPY. These symbols are loosely
correlated, as opposed to trading GBP and EUR or CHF which is essentially the
same trade.
GBPUSD tends to make the widest swings = trend
moves compared to all others. GBPJPY is comparable, but -10 pip bid/ask spread
makes this one akin to trading two GBPUSD contracts per one GBPJPY. The USDJPY
pair is too sideways buzzy-fuzzy for my taste… while the EURJPY is just right.
For the most part we’ll profile GBPUSD and
EURJPY symbols in this forum, with occasional guest spots for other currency
pairs. When FX markets are sideways, all pairs are muted. When FX markets are
directional, most pairs offer high-odds trade setups for success.
{Price levels posted in charts below are
compiled from a number of market measurements. Over the course of time we will
see these varying levels magnetize = repel price action consistently}
GBP/USD (+$10 per pip)
British Pound has offered one pull back long
trade signal (blue arrows marked) after another since Friday. That action has
halted after hitting long-term resistance (noted later) and ahead of the FOMC
event today.
EUR/JPY (+$9 per pip)
EuroYen also stair-stepped its way upward since
last Friday, with multiple long trade entry points valid along the way. EURJPY
could continue further upward without pause, although it is certainly due for
one.
Trend View:
GBP/USD (+$10 per pip)
British Pound has smacked into 50% resistance
of the major swing lower from August highs to November lows. Price action
dropped nearly -100 pips from there. Next real firm resistance would be found
near 7940 level if indeed 7770 eventually gives way.
EUR/JPY (+$9 per pip)
EuroYen has nothing but blue skies above it
right now. A pause or dip into 141+ or even 140s would merely be normal profit
taking from the +500 pip rally off most recent lows.
Fed Day Trades
Currency markets are very dynamic and responsive to interest rate
econ reports. None are bigger than the FOMC meeting today. Although it is widely
expected to pan out the same as other Fed events, there is still potential to
rattle the FX tapes past 2:15pm est.
One very tradable play is to “strangle” the USD
pair symbols with a long entry above and short entry staged below current price
levels near 2:10 ~ 2:12pm est. For example, if the GBPUSD is trading 7600 this
afternoon, I’ll stage a long entry at 7625 and short entry at 7575. If filled on
either side, I’ll adjust the other order to within -40pips of trade fill and
then trail according to price action moving in favor from there.
That type of play usually offers +100pip or
greater potential soon after the news, with occasional sideways buzz stopping it
out for no gain or loss. It is possible to fill both sides in a big whipsaw and
lose -50pips before any adjustments can be made, so we take that into
consideration when choosing lot size = actual dollars risked.
Bottom line? Price strangles in the FX work
exactly like they do in the options world when betting on a big directional move
either way. About half the time this trade yields +100 pips or better, while
half the time it stops out for -30pips to -40pips or less.
Wednesday should see a resumption of
directional bias for FX markets once the FOMC news is noted, digested and priced
in from there.
Trade To Win
Austin P
(Weekend Outlook trend-view section…
open access)
Austin Passamonte is a full-time
professional trader who specializes in E-mini stock index futures, equity
options and commodity markets.
Mr. Passamonte’s trading approach uses proprietary chart patterns found on an
intraday basis. Austin trades privately in the Finger Lakes region of New York.