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Fundamental Picture

Last week, the main market theme clearly came from the Federal Reserve when the central bank said that it could taper its asset purchases before the year ends if economic data meets its expectation. The Fed was basically more hawkish than previously thought as it indicated that there were “diminished” downside risks to the economy. To top it off, Fed Reserve Chairman Ben Bernanke also didn’t show any concern for the weak inflation rate.

Analysts now anticipate that the Fed will taper its asset purchases from $85 million a month to just $65 million in September. As a result, risk aversion took over because traders believed that reducing the very thing that propped economy would be a bad idea.

The Greenback of course rallied on the news, leading to the U.S. dollar index rising to 82.31. Meanwhile, the equity market took a hit, with the DOW falling as low as 14,688.40. And finally, U.S. 10-year Treasury Yields jumped to 2.514%.

Potential Trades

GBP/USD: Bearish

GBP/USD 1-hour Chart

I think it’s pretty clear from the chart that the pair is on a downtrend. Cable has been making “lower lows” and “lower highs” while price is below both the 200 and 100 SMAs. I’m not sure yet how to get in the downtrend, so I’m going to wait for a retracement. I’ll update ya’ll once a good setup forms.

USD/JPY: Bullish

USD/JPY 1-hour Chart

I really wanna jump in on the USD/JPY rally! Given the shift in the Fed’s monetary policy outlook, I think that we’ll see the pair continue making higher highs in the next few weeks. Using the Fibonacci tool, I noticed that the 38.2% Fib level coincides nicely with the pair’s previous high. If reversal signals materialize around the area, I’ll jump in on a long.

How about you? What’s your game plan for the week?



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This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.