We can go ’round and ’round about all the factors surrounding the Fed. I am frankly sick of it because it does not ask the RIGHT question: To what degree will your positions (including pending trades) be effected by the Fed? Anything else is just hyperbole.
The obsession with the taper makes for good media fodder but in the end – for us – it’s about the trade and primarily the trade’s exposure to the Dow and the U.S. dollar.
No doubt this environment is primarily driven by central banks: FOMC, BOJ, RBA… For me I have scaled out of my JPY trades except for the AUD/JPY which plays off the RBA’s dovishness and the discounting of 25 to 50 basis points of cuts over the next 12 months. The RBA and RBNZ message is the clearest to me and therefore my book reflects that with positions in the AUD/CAD, AUD/USD, GBP/NZD, GBP/USD. I am most exposed to the Fed event today through the AUD/USD and GBP/USD but the AUD/USD is an older entry and therefore I am willing to sit through much of the Fed-induced volatility.
This set up too has some near-term implications for the trend since the AUD/USD is not an accelerated a trend as some others like the AUD/CAD, EUR/AUD, and GBP/AUD. There is more of a correction required to reach the entry zone, in this case swing zones.
The AUD/USD is nearing the 20DMA which is my aggro swing short trigger but with a daily pip movement range of 90 to 140 pips (average to high) and a current range of 114 pips the AUD/USD is already beyond the average. Another 30 pips above today’s high would put the pair near the 0.9880 minor psychological level.
Here’s the (strange) bottom line: *No one* thinks anything is “wrong” with the economy, but the risk ON rally has stalled this month. Traders fear what Bernanke HASN’T said. This is the “Is there something I should know?” stall. Oh yeah, and didn’t he just get fired by the President on Charlie Rose? No wonder the market’s on edge. This is playing out like a soap opera.
So here are the questions you should be asking:
What happens if the Fed is more optimistic on the economy? (Dow stronger and dollar stronger)
What happens if the Fed lacks “clarity”? (Dow weaker)
Would this alter the course of the weaker AUD and NZD?
Would this alter the course of the strong EUR? (By the way, the euro is the strongest major currency this year up 4.6%)
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