Forex market focus has turned to the FOMC meeting due at 4am Thursday AEST. The chances are that the Dot Plots showing each governor’s interest rate expectations could hold the key to market reaction. As I see it, a couple of useful forex chart set ups could be triggered tomorrow
The latest dot plot chart is shown above. The consensus view of Governors back then was for one more rate hike this year followed by three in both 2018 and 2019. That would leave the upper boundary of the Fed Funds rate at 3% by the end of 2019 compared to the current level of 1.25%
This is a lot more aggressive than current market pricing which expects only one or perhaps two rate hikes between now and the end of 2018
Many expect this set of Dot Plots to indicate a slightly more dovish stance given disappointing reads on core inflation over the past 6 months. This leaves scope for this Fed meeting to be a market mover.
A more dovish stance from the either the Fed statement or the Dot plots could be bearish $US. However if the Fed holds the current line, it could be bullish. This is certainly possible. A majority of Governors could decide more evidence is needed before assuming that current economic growth will not soon begin to translate into increased inflationary pressure
The Euro chart is forming a “distribution” pattern. This is a flat trading range sitting at the top of a significant uptrend.
The significance of this Euro pattern is that it is also sitting at the resistance formed by a major low in 2012. The 2012 low is not shown on this chart but the dashed horizontal line picks it up.
A break below the support of a distribution pattern is a bearish chart indicator and would confirm rejection of the 2012 resistance. This support also picks up a trend line and the 50 day moving average, making it look quite significant.
The opposite might happen of course. Price could break through the resistance in a continuation of the Euro up trend.
Risk: Reward Of all the short term possibilities, the one I find most interesting from a risk: reward point of view would be for the Euro to rise to and then fall away from this 1.205/1.2095 resistance area. That would set up for a potential triple top and a short Euro trade with a buy stop loss above the resistance; positioning for a return to and possible break of the pattern support.
This chart also goes into the Fed meeting with a potential short set up. The recent peak was at an ABCD point where the CD swing is a 127% Fibonacci extension of the AB swing. This would be confirmed by a lower low and even better, a lower close, setting up a short trade with a buy stop loss above the recent peak
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