USD/JPY: Should stay heavy in risk-off environment
With equity markets falling quite heavily, the natural reaction in the FX market is for risk pairs like AUD/JPY and GBP/CHF to take a bit of a beating. With this in mind, I prefer the sell-rally play in USD/JPY with levels around 97.60 looking like ideal medium-term entry levels.
AUD/USD: Nearing buy-zone
I've bought small AUD/USD at .9290 as I feel we are nearing the buy-zone. The market remains overall very short of AUD/USD and even though the bears have gained some serious short-term momentum immediately post-Bernanke, I think they will struggle to maintain it over coming sessions. I'm keeping it small for now but I expect .9230/50 to be the base for this spike.
What the banks are saying about FOMC
Now you can read what the 'real' experts are saying regarding the FOMC thanks to FXWW888.
How to trade the FOMC event
I know that my view is not shared by everyone, but with the Fed likely to implement some QE tapering, or at least more strongly telegraph it (excellent article on the subject from Nomura), this is how I think the market will react. I'm basing my views on recent market moves, especially what happened in the FX market last week when a big global macro fund started dumping positions across all asset classes.
- Aggressive tapering by the Fed will have a big impact across all asset classes and encourage macro and hedge funds to exit positions built up over many years. We will see panic selling in certain markets, gold will fall back towards $1250, and the risk trades like AUD/JPY will fall hard. USD/JPY will fall towards .9350 and AUD/USD will test lows at .9325. The CHF will outperform whereas the GBP will underperform, in the very short-term at least. In this scenario GBP/CHF could be trading near 1.4100 and AUD/JPY near 87.00.
- A timeline is set for gradual tapering; then we will get a much reduced version of the above and in fact we may not get too much reaction at all. I sense that the market is prepared for this scenario.
- No change at all and no mention of tapering: This will see the risk trades like GBP/CHF and AUD/JPY rally hard, maybe 1.46 and 93.00 respectively.
That's how I see the world and I think that quick cross traders might get some excellent opportunities after the event.
EUR/GBP: Booking my small loss
I don't like being distracted by small irrelevant positions, usually taken on a whim, so I've cut my shorts from yesterday for a 25 pip loss and will look for some trading opportunities elsewhere.
Overall I'm bearish USD so let's see if we get some chances in the next few hours, perhaps the market might spike 100/150 pips? Doesn't look like it at the moment but you never know.
Few pointers from Asian session
- AUD/USD: Technical support at .9430 is relevant.
- USD/JPY: Bearish undertone continues with "risk-off" becoming market's default stance.
- EUR/USD: Asia hasn't moved this pair in months it seems.
- FX market seems comfortable with its' positioning heading into the FOMC, not sure about other markets though.
USD/JPY edging lower in very quiet trade
No surprise to see a very quiet session ahead of the big FOMC risk event. USD/JPY is edging lower but no big flows have been reported and AUD/USD is back at opening levels after an earlier push lower to test .9430 support.
AUD/USD: Technical support levels holding at .9430
There is modest support on the short-term charts at .9430 and that is holding for now. EUR/AUD is making new short-term highs yet again and the big flows seem to have started in this cross again, so extreme care is warranted.
USD/JPY: Still looks likely to test important levels at .9340 and below
- Obviously much will depend on the FOMC language but 'risk-off' sentiment remains dominant in the FX market so I'm still tending towards the view that we will see a test of technical levels starting at .9340.
- The Yen crosses were not a big event yesterday.
- I think its important to note what happened to the Yen last week when one of the big macro funds unwound positions across all financial markets; the Yen rose sharply. If the FOMC leads to more macro funds dumping positions then the Yen will likely rise sharply again.
AUD/USD: Range trading favoured
- The return of large EUR/AUD buying was very interesting and we have to wait and see whether this was a one-off event or not.
- AUD/JPY remains heavy but the lack to follow-through below 89.90 suggests that yesterday's selling was a stop-loss hunt primarily (I knew I'd hit the low :( ).
- Sovereign names, including big central banks, as well as real money funds were noted buyers of AUD/USD starting at .9500.
- The technical picture remains bearish but further sideways consolidation roughly between .9430/.9600 looks likely.
Unless we get some last minute positional adjustment pre-FOMC, we can expect a fairly quiet session I think. I've got no strong views at the moment.
EUR/USD: Starting to exhibit some signs of strength
- Heavy protection of 1.3400 barrier was eventually chewed through and quiet consolidation at that level is now a bullish sign.
- Demand on the crosses also returned with more heavy EUR/AUD buying reported. EUR/GBP was another of the crosses to make a break up out of its recent consolidation range.
- The market is still overwhelmingly bearish on the EUR and whilst shorts have been reduced, the market is definitely not long.
Overnight flows seem to suggest that the path of least resistance for the EUR/USD is higher and buying intraday dips towards hourly trendline support at 1.3350 would seem to make sense.
EUR/GBP: Makes sense to try a small short trade
- EUR/USD selling likely to be very heavy ahead of 1.3400.
- GBP/USD bids look to be very solid near 1.5660.
- Plus I'm overall bearish on the cross and have been looking for selling opportunities.
I've taken a small short at .8535, let's see how it develops.
EUR/USD: If there's any such thing as a 'safe' trade.....
Well there isn't but with the giant panda reportedly defending a double-no-touch structure it seems prudent to be short above 1.3350 with an obvious stop above 1.3400 and a target at 1.3050.
Cable: Good bids at 1.5660 keeping stops safe for now
Like I mentioned earlier, the stops are in the right place with solid bids at 1.5660 keeping them safe for now.
AUD bottom pickers: Time to admit defeat
I've taken my loss in AUD/JPY and it would not surprise me if my stop-loss level at 89.83 turns out to be the low! No matter, gotta put your stop somewhere and I'm not a big enough believer to run it any further. I'll wait for other opportunities but I don't fancy trading this side of the FOMC so it may be a quiet 24 hours for me.
Cable: Stops reported below 1.5660
I still like the cable a bit higher overall but dealers seem to be of the opinion that the short-term market is a bit overly long and we may get a squeeze lower.
Stop-loss orders are reported below 1.5660.
EUR/AUD bearish set-up
My old mate Jim Langlands at FX-Charts sees a bearish set-up in EUR/AUD and you can also follow the updates on his trade ideas via Twitter on https://twitter.com/jl_fxcharts.