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Sir Pipsalot's FOMC and Wednesday Market Update 11-03-2010

Discussion in 'Commercial Trade Journals' started by Sir Pipsalot, Nov 3, 2010.

  1. Sir Pipsalot

    Sir Pipsalot Former FPA Special Consultant

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    Hey folks,

    With the US elections seeming to have taken a modest Republican turn (USD positive), and the huge USD weakness we've seen over the past couple months in anticipation of today's likely QE2 announcement, I believen we're well set up for a USD rally over the medium to long term. If the Fed disappoints today, the USD will strengthen rapidly, if the fed institutes QE sufficiently to meet expectations, the dollar has weakened so much that any resulting rally should be relatively short-lived. Even if the FOMC does start up a hefty QE program, I believe the EUR/USD rally will top out in a matter of hours to days, and turn into a selloff well below 1.3700. It really does smell like prototypical "buy the rumore, sell the news" type price action on the horizon here for EUR/USD.

    There's no shortage of news US and otherwise due out Wednesday, so let's get crackin':

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    0530 UK Services PMI (52.6 expected) - This news is a pretty reliable performer from both a spike and afterspike perspective.

    Spike Strategy: Look for 25-40 pips quickly with likely retracement within the first minute, so either hold on through that or take profit very quickly. A 1.0 surprise should be tradable, while a 2.0 surprise while rare would be a big mover.

    Afterspike: Retracement is likely within 1-2 minutes, then another chance for a tradable retracement in the 5-15 minute mark. Best to take final profits within 40-90 minutes if holding.

    If it comes out at 53.6 or higher, GBP/USD should rally 40 pips.
    If it comes out at 51.6 or lower, GBP/USD should drop 40 pips.

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    0815 US ADP Employment (20K expected) - This news has a moderate effect on currencies, and typically a nicer move on stocks. With the focus a little less on NFP this week with the elections and FOMC statement, I've chosen to widen out the triggers a bit from 50K to 70K for the afterspike.

    Spike Strategy: Probably not the best spike trade, but if we see a 100K surprise, that could be enough for a 40 pip spike on EUR/USD, but trade it conservatively.

    Afterspike: Try to get in after news within 15-20 pips of prerelease if possible in the first few minutes. I would not trust a retracement after 10 minutes.

    If it comes out at 90K or higher, EUR/USD should sell off 40 pips.
    If it comes out at -50K or lower, EUR/USD should rally 40 pips.

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    1415 FOMC Interest Rate Decision (some level of new QE highly anticipated) - From a news trading perspective, it's all about how much stimulus they enact and how they do it. While there are dozens of scenarios that could play out, I'll try to cover the most likely options. Keep in mind that no action, or underwhelming action is the best opportunity for a very nice trade.

    1) If they hold off QE yet again and take no action, EUR/USD should drop sharply and maintain a strong downtrend. My best guess would be 150-200 pips in the first hour, and 500-700 pips lower over the next couple of days. A highly dovish statement that guarantees QE is on the way may mitigate that drop a bit, but only slightly.

    2) If they accounce new QE of considerably less than $500 billion (say 100-300 billion), and leave the door open for further purchases, the market should be pretty disappointed by this outcome based on the huge QE already priced in. EUR/USD should drop about 70-100 pips in the first hour, and 200-300 pips over the next day or so.

    3) If they announce QE of $500 billion or more and/or lay out a concrete plan to purchase a total of $1 trillion or more over time, this will meet market expectations and we should see at least a short term EUR/USD rally or consolidation. I'd expect a 50-100 pip rally, but I would expect the rally to set a top for a larger reversal lower over the next few days.

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    1745 NZ Employment (0.4% to 0.5% expected) - This news has worked quite well lately due to some consistently large deviations. Also look for the Unemployment Rate (6.7% expected) to come out in a complimentary direction.

    Spike Strategy: I'd expect 30-40 pips on the spike if a trigger is hit. Since the initial move tends to hold on a bit, you shouldn't have to be in as much of a hurry to TP and may want to let 1/2 the trade ride as an afterspike.

    Afterspike Strategy: If the news comes out solid enough, your only chance to get in may be to chase the momentum after the news trying to get in within 30-40 pips of prerelease.

    If it comes out at 1.0% or higher, NZD/USD should rally 30-40 pips initially, and 50-60 over 30 minutes.
    If it comes out at 0.0% or lower, NZD/USD should drop 30-40 pips initially, and 50-60 over 30 minutes.

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    2030 AU Retail Sales (0.5% expected) - It's been quite awhile since we've seen a good deviation on AU Retail Sales, but it should be good if we do. Just be mindful that we're also getting a quarterly ex-inflation number expected at 1.1%.

    Like NZ Employment, if AU Retail Sales comes out with a tradable surprise, there's not likely going to be a retracement to bank on, so for the spike look for 40 pips or so, and for the afterspike, try getting in a bit after the news with a trailing stop.

    If it comes out at 1.0% or higher, AUD/USD should rally 40+ pips.
    If it comes out at 0.0% or lower, AUD/USD should drop 40+ pips.

    That's all for today's update. If you'd like to learn more about trading or trade along with myself and my collegues, come join us at Profit Mongers. Our subscription is very reasonable at $179 per month, and right now you can sign up for a 2 week trial to get started for only $29. This offer is for new customers only. If you have any questions, you can also email me at sirpipsalot@profitmongers.com

    To our success!
    Sir Pipsalot
     

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