We’ve talked before about many traders’ penchant for asymmetric risk. Market surprises can lead to large moves. The Brexit driven fifteen big figure fall is a good recent example. The market – and the bookmakers – expected a clear Remain majority. As the count progressed the ultimate result became clear, and GBP tanked.

Next week’s FOMC meeting may offer a similar risk profile. Market expectations that the Fed will lift interest rates were low before the release of soft IP and retail sales data yesterday, and are even lower now. A lift in rates after the two day meeting would surprise, offering a potential larger market move. How can traders take advantage?

A higher interest rate regime is supportive of the USD. A surprise lift could see it break away from current levels. One of the challenges in selecting a market to express this view is the competing interests of other central banks and their currencies. The Bank of Japan is meeting at the same time as the Fed, and could announce measures that affect currencies, and the ECB or PBoC could also act. However, there is no central bank for gold.

Gold is nearing key support just above $1300. Note the AXDR confirms the down trend. A surprise rate rise could push the USD higher, and gold through support. This in turn could spark technical selling in gold, potentially spurring a large fall.

Selling at $1298, with a stop loss around $1306, my initial profit target is between $1252 and $1272. Gold bears may hang on to shorts for a longer term move towards $1200.