Forex Trading Insights: Managing Risk Around Major Central Bank Decisions 10-31-23

Outline

Introduction

  • Looking at forex markets after market close
  • Major news events this week that will impact forex (consumer prices, GDP for Euro; employment numbers for NZD; interest rate decisions for USD, GBP)

Dollar Index (DXY) Technical Analysis

  • DXY trapped between 100-day and 200-day moving averages
  • Drop looks significant but DXY still near monthly open price
  • Expect neutral Fed interest rate decision to keep rates at 5.5%
  • Neutral decision could be priced in already based on price action this month
  • Good economic reports Thurs/Fri could boost DXY higher

Trading Ideas for Major Currency Pairs

  • USD/CAD finding support at 20-day MA and minor quarter level
  • EUR/USD rejection at 200-day MA, lower highs showing weakness
  • GBP/USD looks weak under moving averages, sell bounces
  • USD/JPY trapped between 100-day and 200-day MAs
  • USD/JPY support at 149 and 200-day MA, could bounce on neutral Fed

Conclusion

  • Be prepared to trade both long and short setups
  • Clear shorts below 149 and 20-day MA in USD/JPY
  • Longs if Fed neutral and DXY holds 10600 support area
  • Close eye on forex pairs around Fed decision for volatility

Transcript

So we are looking at the market here. After the market closes. There are a few things we want to point out for this week.

We do have a lot of news this week. Tomorrow we do have major news coming in for the euro with their consumer prices as well as their GDP coming in. We also have numbers coming in for employment numbers for the NewZealand dollar.

And then Wednesday is where things really get fired up, where the monetary policy statement and interest rate decision is laid out as well as that FOMC press conference following. And so this week will get very active and on the following day we do have the same exact thing. So we have the interest rate decision for the pound as well.

So with that backdrop, I wanted to kind of take a look at some of these trade ideas that will be very active for this week. Right now we do have the dollar index trapped right now. So when we go back and we look at where the dollar index is currently trapped, this was the start of the month, this was the second week of the month.

Price right now is trapped in between those two areas. So this drop, though it may look like a vicious drop, it’s actually not that bad of a drop when you put it in perspective. Because when you put it in perspective, it is literally right around the area that the month started.

If we come over here and just look at things in perspective, what you have right now is for the month it’s almost at zero. It’s almost at net zero. So that means that individuals that entered into this trade idea at the top of the month,they’re at about zero for that trade idea if they took that at where the week started.

And so right now the reason why that becomes so interesting is because the expectation for the Fed decision, for the interest rate is that the interest rate would remain the same at 5.5 if the interest rate decision remains the same at 5.5. And when that decision comes out, if it is able to continue to hold on to this 106 area and it’s trapped and it stays trapped in between the 100 period moving average and the 200 period moving average, the market could see that as being priced in.

And so that’ll actually be a very critical decision. Again, if the market doesn’t see it as being priced in, we could see this continue to break down. As far as that neutral read where we are not, if you will, raising rates which would cause for this to continue in this crazy trend that it’s been in, but we’re not lowering rates which would cause for this to make some fresh new lows.

Well, the expectation is that we’re not lowering rates and so the expectation is that we’re going to continue to keep it neutral at 5.5. And so again, the market could easily see this as being priced in because again, this sell off that we’re seeing not only started with this price action from this week, but also you can see that from two weeks ago here.Two weeks ago we see that price came back and started the week off at the same area.

So this literally could already be priced in. When you look at what’s happened over the course of the month, we literally started off, popped up, dropped down, popped up, dropped down, popped up and it’s dropping down. So Literally the market could already have this priced in as net neutral and we can just see the dollar just continue to take off from here because of the fact that the news itself, if you will, is priced in.

So if we get good reports as far as the report that’s coming in on Thursday and the report that’s coming in onFriday, if we get good reports with those we can see the dollar continue to take off. And again, depending on what the interest rate decision is for the pound, we can see the dollar take off against the pound as well. And so it just all depends.

So we also have those hourly earnings coming in on Friday as well as non farm payroll and Ism services PMInumbers. So again, this is a very critical week for the dollar. The dollar is at a very important spot.

With all that being said, let’s look at the charts for these pairs. So again right here, one of the things that we called out today is that we have the Canadian dollar here finding great support in this area where the 20 period moving average and the minor quarter area are both meeting. So again this spot right here, you can see the entire day, it’s just finding its support here.

So you have a low here, a higher low here and a higher low here. So again finding support here with this 20 period moving average and then consistently finding support with this minor quarter area here as well. So again, if this does break down with the idea as far as for the dollar itself in the interest rate decision, then we will be looking at some near term bearishness until some more bullish news comes out.

So we can see this pullback potentially find support in this major quarter area before continuing or breaking down in this area. So it all depends on what the news comes in as we see for the Gu idea, we see this idea again finding some support with this shorter term Pivot moving averages, but also finding rejection at its 100 P with this 100 pin moving average. Again, we talked about this one last week shooting up and coming back down.

And so again we can see something very similar this week. It all depends on what the dollar comes in at and what the pound comes in at. We see here for the Euro, again finding this consistent rejection here at the 200 period moving average, it cannot find a way to continue to close above this 200 period moving average.

And so that’s where we find this price constantly getting stuck. So it wicked up, lower high, lower high. And so that’s what we’re seeing so far for the EU idea, we also see for the GJ idea.

So for the GJ idea, again, this one is up for the week. This one also is underneath all of its moving averages. So this one looks to be a sale on whatever bounce, whatever pop it gets, that pop should sell off.

Based upon the chart, the EJ idea is again up for the week, but then moving averages. So it has its longer term pay moving averages below it below price and then its shorter term moving averages in the position above price. And So it’s trapped right now in between both of those.

But again, with moving averages going sideways, this can pop really quickly and it can drop just as fast because the moving averages are moving immediately sideways. We also found support for the UJ down here at 49, at 149, but also at that 200 period moving average. So it came down, dropped down to the 200 period moving average, foundinitial support there at the 20 period moving average, after catching the 200 period moving average and then was able to pull back up to the 149 area and after finding support here at that 149 area, it continued to move up.

So again, another idea that is in between is 100 people moving average and is 200 people moving average. So,again, if the idea itself appears to be a net neutral idea, because this one is even down for the month, so this one also being down for the week, also being down for the day, this could be a net neutral idea where this idea could bounce. If the interest rate decision comes in exactly as expected and we remain at 5.5.

So again, these are all things to consider, these are all things to think about as we have this report getting ready to come out. So that again, be prepared for the long side. Be prepared for the short side.

Again, the short side is clear. Again, a loss of 149, loss of the 20 period moving average. Again, those are ideal shorts.

But as far as on the long side, when you look at this you’re saying to yourself, man, this thing is trapped below and it’s underneath its 100 period moving average and it’s above this 20 period moving average. So again, this could easily be priced in because if there is no drop, so if there is a drop, then that’s a difference. But if it comes in exactly as expected, remaining at 5.5,

then we could definitely get some interesting things taking place here. So again, we’re going to continue to keep your eye out on that. And we look forward to trading those ideas with you guys this week.

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