Post-FOMC trade recap: hawkish tone signals one more rate hike before year end

Earlier this afternoon, the Federal Open Markets Committee gave its statement and economic projections. Naturally, the US dollar reacted appropriately so here’s what you need to know.

Current economic projection expects to keep the interest rate unchanged at 1.25%.  Also, 11 out of 16 officials see the rates kept at the 125 to 150 basis point mark. However, it was also announced that the Federal Reserve will begin its reduction of the balance sheet starting in October signalling the tightening of its monetary policy. Markets have reacted appropriately expecting another rate hike sometime before year end.

Since I got into the appropriate trades before the meeting minutes, I did catch the move and the technical setups did held up accordingly. Here are the two trades I took.

usdjpy1
USDJPY 12-Hour

I’m using the 12-hour chart just because it’s zoomed in a bit better. This wasn’t a perfect pull back on the daily upper breakout. Nevertheless, I got in long with a much wider stop loss and adjusted my volume accordingly. Currently, I am up about +125 pips and will continue to ride this as the fundamentals should continue to drive this pair higher.

My current plan is to move my stop loss to a bit above my entry to secure the break even point. The key US event tomorrow is the unemployment claims figure. If this figure comes out lower than expected, it should continue to drive this pair higher as a predictor to inflation. If this indicator comes out worse than expected, I will have a cushion with today’s gains to get stopped out a bit above break even. Given this pair also pays a positive interest differentials, I have no problem with holding this pair for the long term.

audjpy1
AUDJPY 4-Hour

This is a similar setup that I entered again. Yes, I understand this further increases my yen exposure. I guess this retracement and then bullish rally is due to the yen being fundamentally bearish. This makes sense given that the Bank of Japan’s monetary policy statement is also due sometime today with the market reacting to a possible negative outlook. For now, I’m currently up +67 pips and will continue to let profits run.

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