Pre FOMC Trading Strategy

  • Look to trade against extended moves
  • Traders will position square into FOMC
  • Big breakout for GOLD market

FADE DAY - Today will be a day about positioning ahead of tomorrow's very important FOMC policy decision. As such, the clear strategy should be to look to take advantage of any overextended intraday moves and use them as an opportunity to fade. So as an example, if USDJPY or GBPUSD sink back towards recent lows from the previous week, look to buy. If these markets extend recent recoveries, look to sell. Anything in between that results in less extended intraday readings, should translate into some stand aside, do nothing trade. So why fade the extreme moves if we get them? Well, with so much hanging in the balance over what the Fed ultimately decides to do, one would expect no serious commitments from markets in either direction heading into the event risk. So if at some point today we do get overextended moves, they should prove unsustainable as pre FOMC position squaring offsets.

WHAT WILL THE FED DO? - The big question on everyone's mind is whether or not the Fed will bow to pressures of risk liquidation and turmoil in early 2016 and scale back its rate hike timeline. If it does, this will bode well for risk assets, at least for a little while. So anything on the more dovish side will open currency gains against the Buck and renewed demand for stocks. Of course, if the Fed dismisses or downplays the turbulent start to 2016, while staying the course, look out for a fresh wave of USD demand and stock market selling. But for now, as I scan across markets, there is only one that really stands out in terms of meaningful moves. Today's break higher in GOLD through $1112 confirms a higher low at $1070 and opens the door for the next major upside extension towards the $1200 area in the days ahead. The bullish break also strengthens the possibility for a meaningful base in place at the 2015 multi-year low around $1045.

Trade with the knowledge of event risk position squaring. Via @joelkruger

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