With the FOMC statement scheduled for today (October 28th) at 2pm EST, Forex traders are making a last ditch effort to analyze their favorite currency pairs in hopes of capitalizing on any volatility the event may trigger.
As such, I wanted to highlight a few of the pairs that I’m watching heading into the event.
However before we dive into the four potential setups below, I want to make something very clear – it is never advisable to enter the market prior to heavy event risk such as FOMC.
A less risky and much more objective approach is to wait for the market to make the first move. Once made, it becomes much easier to translate the resulting price action into profitable trade setups.
With that said, let’s dig in!
Far and away my favorite price structure at the moment goes to EURUSD. After seven long months of consolidating within an ascending channel, the bears finally managed a close below support at the end of last week.
With such a drastic move between Thursday and Friday of last week and given today’s FOMC statement, a period of consolidation or even a relief rally is to be expected.
That is exactly what we have seen since Monday, with the pair just skimming along the bottom of what used to be channel support.
In the bigger picture, this break could trigger a much larger move for the single currency. The idea that this is a bear flag pattern off of the 3,500 pip decline that began in May of last year would place a measured objective as low as 0.8225.
Of course whether or not the market plays along is yet to be seen.
All in all I’m bearish here, but like any FOMC day, things can change quickly. That said, only a daily close back above former channel support would negate my stance. Until that time I will continue to look for selling opportunities.
Summary: Watch for bearish price action while below former channel support on a closing basis. Key support comes in at 1.0820, 1.0658 and the multi-year low at 1.0470. Alternatively, a daily close back above former channel support and the 1.1100 horizontal level would negate the bearish bias and expose the 1.1280 handle.
GBPUSD was featured in the weekly commentary, where I noted the four-week trend line that had developed off of the October low. This level failed during yesterday’s session, opening up the potential for a move lower.
We can now see that the pound has gained some traction and is moving back to retest this area as new resistance. Bearish price action from here could present a favorable opportunity to get short.
On the flip side, a 4 hour close back above this trend line would negate that idea and expose the next resistance level at 1.5475.
Summary: Watch for bearish price action on a retest of former trend line support as new resistance. Key support comes in at 1.5110 and 1.4980. Alternatively, a close back above the trend line would negate the bearish bias and expose the 1.5475 resistance level.
It’s safe to say that NZDUSD has surprised most Forex traders over the past five weeks. After finding a bottom at 0.6200, the pair has managed to recover nearly 700 of the pips that were lost during the slide lower that began in late April.
However, while a 700 pip rally is nothing to sneeze at, it is also less than half of the 1,550 pip decline that spanned the four months between May and August. Looking back even further, that amount is less than a third of the 2,600 decline that began in July of 2014.
So as impressive as the recent rally has been, we are still very much in a downtrend as far as the bigger picture is concerned.
On more of a micro level, the pair has formed a wedge pattern that began in mid October. The support level that extends off of the October 14th low recently broke, exposing the lows from October 21st and the 22nd.
With FOMC upon us, traders can watch for bearish price action on a retest of former wedge support near 0.6760. A hold below this level on a closing basis could trigger a move down to the 0.6630 support level over the coming sessions.
Summary: Watch for bearish price action on a retest of former wedge support as new resistance. Key support comes in at 0.6630 along with the trend line that extends off of the July 10th high at 0.6770. Alternatively, a close back above former wedge support would negate the bearish bias.
Perhaps the most unsuspecting of the group is AUDCAD. While this is not a pair that I trade often, it does occasionally carve out a favorable price structure or two.
The flag on the 4 hour chart is a perfect example of such a pattern. It began forming after the pair retested the 0.9170 handle, a level we had been watching for quite some time.
While that level is expected to continue to play a role on a move lower, the 0.8985 handle is what interests me the most right now.
Why is that, you ask?
Not only has this level influenced price action since 1998, it is also the measured objective if we treat this latest consolidation as a bear flag pattern.
Summary: From here traders can watch for a close below channel support. Such a break would expose former support at 0.9170 with a break there opening the door for a move to the 0.8985 region. Only a close above channel resistance would negate this idea.