The Fed ends QE as expected, but there were unexpected positive comments from the FOMC that has forex traders still optimistic of a rate hike–and me bullish on USD.
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
The Fed not only thought that labor market conditions were improving, but they also didn’t think that the current weak inflation environment would impact long-term inflation. This apparently had analysts still thinking we’ll see a rate hike in 2015, and forex traders back to buying Greenbacks right after the release of the latest monetary policy statement.
Even though the end of QE was expected, the surprise positive comments on the jobs market and inflation outlook could be seen as a fresh catalyst for further bullish movement for now. That’s why I’ve decided to scale into a long dollar position this afternoon.
Technically, USD/CHF provided a sweet setup as the pair found strong support recently around the .9400 handle and a rising trendline. I think the area from the current levels (around .9550) all the way down to .9400 could draw in buyers, especially since Asia and Europe has yet to play the FOMC decision, so I’ll scale into a long position through this area. My first target will be the recent swing high around .9700, while my stop will be one full WATR from my average entry if both positions are triggered. Here’s what I am doing:
Long half position at market (.9550), stop at .9365, first target at .9700
Long half position at .9450, stop at .9365, first target at .9700
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.48:1–more if the story or price behavior supports a move beyond that .9700. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!