Forex Adjustments Ahead of the FOMC

With a potentially volatile event coming up this week, I’ve decided to adjust my forex trades to lock in small profits and avoid event risk.

Long EUR/USD

Original Trade Idea: Shorting Back into the EUR/USD Downtrend

EUR/USD 4 Hour Forex Chart

EUR/USD 4 Hour Forex Chart

My main adjustment ahead of this week’s FOMC meeting was close down my EUR/USD short.  I think with recent U.S. data coming in weaker (especially weaker inflation and housing data), it’s probably a better than average probability we’ll get rhetoric this week from the Fed that they’re not in a rush to raise rates after QE ends.

Of course, I won’t know if that’s the case for sure until Wednesday, but I’ve learned that trying to guess and play these events tends to be more harmful than helpful to my forex account.  So, with that mindset, I closed my EUR/USD short manually at 1.2700 to lock in a very small profit:

Total: +75 pips/ +0.25% gain

Long USD/CAD

I have also closed out my orders to buy USD/CAD at 1.1175 as the event is likely to push this pair to the downside quickly.  I’ll avoid event risk for now and re-assess the situation after the FOMC monetary policy announcement to see if going long USD/CAD is still a high probability trade.

Long NZD/CAD

Finally, I’ve still got my NZD/CAD long position on, which gave me a little bit of heartburn last week as it went from .9050 all the way down to .8750 to put me in the red.  Fortunately, since this is a longer-term trade, I’ve protected myself from the big swings by trading small, and now I’m back in the green by about 100 pips.  I will continue to hold for now since the trend is still in tact and buyers seem to be holding the .8700 area for now.

That’s it.  No new ideas for now as I’ll wait for the FOMC monetary policy announcement, which will be at 6:00 pm GMT (2:00 pm ET) on Wednesday.  I’ll see what they have to say and how the forex market reacts before developing new longer-term biases.  Stay tuned!

  • Chumpski

    Alrighty I have a very basic question. If the FOMC meeting results are positive for the dollar then EUR/USD will sink right? And if the results are negative then the pair will rise, yes? And you closed it out because you think there is a chance the results will be moot or negative? Sorry for nitpicking i’m just trying to straighten out my brain a little.

    • Pipcrawler

      First, there are no guarantees on how a market would react to an event; what a market prices in before an event and the overall market environment are pretty big variables. When I closed the trade, the market was taking off Dollar longs because recent data suggests the FOMC may push back any potential rate hikes in 2015. Since that speculation is already being priced in, it’s possible that if we see a dovish Fed, the USD may actually rally on a “buy-the-rumor, sell-the-news” reaction. Or USD could sell off even more depending what they say. No one knows. I could have left my trade on to gamble on the event, or play it smartly by seeing what the Fed says and how the market reacts first to make a better longer-term decision. That’s my thought process to manage risk and wait for better opportunities. We’ll see what happens.

      • Chumpski

        Ah I see, thanks for the reply!

  • Gabadinni

    I agree…