Daily Price Action

A Pre-FOMC Trade Idea Without the Volatility


Federal reserve system sealAs we approach an especially impactful FOMC meeting on Thursday at 2pm EST, it’s important to make sure that we are well isolated from the increase in volatility that will likely follow the event.

Normally at this time I would put out commentary on a few potential trade setups that might be confirmed with the outcome of the upcoming decision. However today I want to take a different approach and talk about a pair that is more isolated from a volatile event like FOMC.

The pair in question is AUDNZD. I wrote about this setup last week, pointing out the break of the two-month consolidation pattern. So far the pair has stayed true to form and is currently testing the next key resistance level at 1.1300.

So how is AUDNZD isolated from an event like FOMC, you ask?

Put simply, it isn’t directly impacted by news that affects the US dollar. The Australian dollar and New Zealand dollar can often move pip for pip on the back of US news, so naturally a pair like AUDNZD acts as somewhat of a buffer during a major US-centric event such as FOMC.

This does not mean that we won’t see an increase in volatility. There is not a market on earth that won’t feel the weight of tomorrow’s decision, especially considering how the whole thing has been dragged out for so long.

However when compared to other currency pairs such as the EURUSD, GBPUSD or USDCAD, AUDNZD should be fairly docile throughout tomorrow’s session, relatively speaking of course.

The initial setup here was a break of the bullish wedge pattern that had been in play since July 2nd. The break materialized on September 10th followed by an inside bar on September 11th.

Since breaking the high of the mother bar, the pair has churned higher and has (thus far) respected the break of the two-month wedge pattern.

But the bulls aren’t out of the woods yet. The pair is currently retesting the 1.1300 handle, a level that can be seen acting as resistance on the 4 hour chart since June but is more notably the 2014 high.

This could present an opportunity for traders if the bulls can manage a close above the key level. Such a close would expose the 2015 high at 1.1420. Break that and the September 2013 high at 1.1660 comes into play.

Do keep in mind that we have a New Zealand GDP reading at 6:45pm EST that will likely shake things up for AUDNZD.

Summary: Watch for a buying opportunity on a close above 1.1300. Key resistance comes in at 1.1420 and 1.1660. Break that and we could see a move up to the 50% retracement from the 2011 high at 1.1900. Alternatively, a daily close back inside the wedge pattern would negate the bullish bias and turn our attention lower.

Bullish wedge break on the AUDNZD daily chart

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