Chart check ahead of FOMC

Yellen’s last FOMC

Tonight at 8pm CET the Fed will publish their latest interest rate decision and FOMC statement. It’s going to be Janet Yellen’s last official act as head of the Federal Reserve before she is succeeded by President Trump’s pick as the next Fed chairman, Jerome Powell.

Although some experts have voiced opinions of 3-4 hikes in 2018, the consensus does not see any interest rate hike in tonight’s meeting. Thus, the focus will be on the FOMC statement and its wording. As this is Yellen’s last FOMC she will possibly leave office with a more hawkish stance than shown during her term. This pattern was previously observed with Bernanke as well.

Chart Analysis

So here is a break down of some charts that interest me ahead of the release. Let’s start off with the Dollar Index #DXY.

The USD weakness smashed through all trend supports on timeframes shorter than the monthly chart. The question is when the relief rally will start. The north American economies still seem to be in best shape of all and certainly have been the only ones raising interest rate substantially from GFC levels. For the Fed I don’t see an end to the hiking cycle and with inflation picking up in the states the pressure to raise will not subside.

A possible explanation for recent USD weakness is the expectation that other central banks around the globe soon follow suit and enter a prolonged hiking cycle to fend off accelerating inflation. This would lead to bond yield convergence. And to be clear, a bond yield spread for the 10 year between the US and Germany of more than 2 % is unsustainable in my opinion. Said in other words, the US 10y bonds yield is more than four times higher than that of the German 10y! By my logic interest-seeking capital thus flows into the USD.

EURUSD

This leads us to the #EURUSD chart shown below.

As we can see, EURUSD trades at trendline resistance on the monthly chart. It already stalled at this level and I find it a great setup to initiate an extended relief rally. I see downside targets at 1.2160 and around 1.1915.

Commdolls

The two currencies I also find vulnerable against the USD are the Aussie and the Kiwi. They both delivered an extended rally and are ripe for a setback. In the case of the NZD I even consider selling a projected channel completion at ~0.75.

In AUDUSD the channel completes higher as shown in the daily.

AUDNZD

These observations coincide with the #AUDNZD chart analysis. AUDNZD is in a bullish trend on the weekly and until proven wrong I’m biased bullishly. Although last night’s selloff warned me that anything is possible at any time.

So I am positioned for a relief rally in the dollar and hope tonight delivers some volatility in my favor.

Disclaimer

Please note: I am an amateur retail trader and nothing I write is meant to be investment advice. Always do your own analysis and take responsibility for your own investment decisions.

How Order Flow Logic Should Improve My Trading

We all know those dreaded situations. We enter a trade with our best judgement, following the trend etc. etc., we place our stoploss with great care and consideration. And still Mr. Market seemingly knows what we do and think. With uncanny precision price will come to our stop loss, trigger the order and subsequently turn around to fly in the anticipated direction of the trade we had.

So recently I have found the Youtube videos of some people, one of them being Mark Chapman. He does a good job explaining why these “stop hunts” happen and how big institutions need to find pockets of liquidity to fill their massive orders. So what I have been playing with is actually playing those supposed stop clusters as entry signals.

As with any technical strategy you can find lots and lots of examples where this would have worked. Look at this recent uptrend in EURUSD on the 4h chart:

Numerous times we could have prepared for those stop hunt dips and profited by buying with the market makers.

So let’s see how this plays out in real-time trading. In my initial back-test it actually worked out ok on some charts. But also it got me stuck in some positions when the trend turns. I think I can possibly work that out with small position sizing.