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Only a couple of hours left until the Fed prints its last monetary policy decision for the year! Are you ready to trade the event?

This week I chose to focus on USD/JPY since it’s been one of the most volatile dollar pairs for the past couple of weeks. Heck, it’s now about 1,500 pips away from its 100.00 bottom since Trump won as President!

I looked at USD/JPY’s 1-hour chart from December 2015 when the Fed last raised its rates and found that the pair still popped higher even though market players basically called the move already. Sounds a lot like these days’ headlines, don’t you think?

USD/JPY 1-hour Forex Chart
USD/JPY 1-hour Forex Chart

One thing I noted about the chart above though, is that USD/JPY also erased ALL of its post-FOMC gains even before the week ended. What’s more, it continued its leg lower until it reached 116.00 by late January. That’s 750 pips away from its December highs!

This is why I’m paying close attention to USD/JPY’s 116.00 – 117.00 levels before the FOMC statement. The area had been a pretty solid support for most of 2015, and is currently sitting near the top weekly ATR. Not only that, but a large wick from December 12 and bearish divergence on the daily chart are also pointing to a possible bearish move.

USD/JPY Daily Forex Chart
USD/JPY Daily Forex Chart

Fundamentally, the dollar is vulnerable to profit-taking before the end of the year. After all, Trump has also yet to provide details on his infrastructure and tax cut plans and share where he plans to get the budget needed to fund his projects. The Fed is also unlikely to be as bullish as it was last year, as they’ll likely wait for more details about Trump’s plans before they adjust how aggressive they should be in the coming year.

At the end of the day though, the strength of the dollar’s move will still depend on how hawkish Janet Yellen and her team will be in their announcement. Analysts are looking for signs that they’ll want to raise their rates at least one or two times more in 2017 now that Uncle Sam is on its way to recovery.

If the Fed chooses to go the cautious route and refrains from making any hawkish remarks, then we might see profit-taking from dollar longs. But if the Fed communicates its optimism over the economy, then the dollar could break above the 116.00 – 117.00 resistance areas and retest its highs near 123.00.

If the dollar breaks above the resistance levels after the statement, then I’ll consider flipping my biases and aiming for the 123.00 area with my stops just below 114.00. But if I see more bearish candlesticks on the daily time frame, or if the dollar finds it hard to sustain its uptrend, then I’ll likely start putting on small short positions and likely build a longer-term downtrend trade.

How about you? Do you have any dollar-related setups that you’re looking at today? Feel free to share!

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