FOMC’s Potential Impact On USD

Hello Forex traders,

To taper or not to taper? That is a question that many have on their mind with FOMC around the corner. Will the Fed choose to unwind its QE programs, although though it could be small increments, or will it keep / even increase the current levels? We will know soon enough, although a reduction would not surprise me.

Without doubt, today’s trading will be influenced by the FOMC statement, FOMC economic projections, and FOMC press conference later on Wednesday September the 18th (2-2.30pm EST). In fact, I feel that yesterday’s trading was already influenced by the announcement as many traders stand aside and await the new numbers and direction for the US, its economies and future policies.

As always there is a higher probability, but not the guarantee, that the market will quiet down before the announcement and become very volatile after it with spikes up and down, down and up. Not always does the FOMC provide such fireworks but it happens regularly enough for us technical analysts to be aware of it. That means for intra-day traders it would be best to avoid opening of positions max 2-3 hours before the announcement, and for smaller swing traders (using 1 hour charts) max 6-24 hours (depending on the strategy). It’s just that time of the month where news traders are all excited and us technical analysts just want to continue with technical trading as soon as the news event is over.

Read here more about news event trading.

With FOMC around the corner, the crucial question is what will happen with the USD? Let us take a look at the U.S. Dollar from a technical point of view prior to the announcement and see how the FOMC will influence that vision tomorrow.

18- 9- 2013 usd w

The USD index remains at a potential bounce or break spot. The USD bounced off of the weekly support a few weeks ago and had a short revival until the 500 Fibonacci retracement level stopped the upward momentum dead in its track.

Currently the USD index is back at those same weekly support levels…..

Key question: is this a hook back for more upside? Or will the USD index break downwards?

The answer is a mix. Obviously there is a downward trend, or at least momentum, on the lower time frames but there is an uptrend on the higher time frames due to the fact that price is above the weekly trend line(s) (solid dark green) and still making higher lows – although recently there was the first lower high.

For me to feel comfortable trading the USD to one side or another, I want to see the trends on the intermediate time frames (4 hour/day) synchronized with the longer term time frames (weekly / monthly). Currently that would only happen if the USD were to bounce up using the mentioned support levels (trend line, bottom, moving averages). Only after a break of support would the situation change for me an FOMC could do that.

18- 9- 2013 usd 4h

I realize that for some of you, the USD index chart could look different. So let us translate that USD index situation to some of the individual currency pairs such as:

EURUSD at 786 Fib. Will the EURUSD reverse from here or break the Fibs and top? http://winnersedgetrading.com/major-gaps-on-majors/

GBPUSD close to 786 Fib.  Will the GBPUSD reverse from here or break the Fibs and top? http://winnersedgetrading.com/major-gaps-on-majors/

USDCHF at 786 Fib. Will the USDCHF reverse from here or break the Fibs and bottom? http://winnersedgetrading.com/forex-trade-setups-on-euraud-and-usdchf/

USDJPY hooking back after break of weekly triangle. Will the USDJPY continue its break north or will the entire break out of the weekly (!) triangle turn into a false break?

FOMC could provide a clue whether the USD support will indeed place the USD back in its uptrend or whether the levels will be broken for USD weakness. And to taper or not to taper could be the signal which of the two will play out.

What is your opinion on the USD? Are you expecting a break or bounce? Let us know down below and we can measure how many favor the break or bounce.

Thanks for the reading, as always, I greatly appreciate the article sharing!!

Good Trading!

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  • Chris Svorcik

    Thanks Piphunter for your feedback! Makes a lot of sense. Let us see what the announcement will bring us. Last month was a quiet FOMC but this one could be volatile. No tapering is probably a higher probabilty if you consider who is the main candidate to follow Bernanke, but lets see! Thanks again, much appreciated!

  • piphunter

    IMHO, in case of some minor tapering will be announced – we will see a wild whiplashing of USD accros the board. If no tapering will take place USD will continue down technically as it is now. Only if FED amazes the markets with something unexpected like huge taper there will be a significant USD bounce.