Post FOMC - Trade Analysis

Yesterday's FOMC meeting was nothing short of a celebrity news. Its surprising how some finance portals put their headlines as 'shocking' which is indeed surprising. Are their analysts too smart with their Phd Degrees that they are out of tune with what's actually happening or are they paid to give out false information? A case in point being Barclays which went on to justify why the fed would taper (Read: Trading the 4 Components of Sep. FOMC). Either there's something that i'm missing or perhaps that is the job of 'Sold-Out' economists/analysts who get fat bonuses based on how much of wrong info they give out.

Anyways, moving back to our analysis, yesterday I noticed the Dollar Index, 12 hour chart forming a Wolfe Wave pattern as well. It is bullish in the long term and currently dropping lower to make the wave 5. Needless to say, this basically puts the Dollar index inversely co-related to the EURUSD.

Later today we will see the initial unemployment claims being posted. Bear in mind that last week's better than expected headline reading was skewed on account of under-reporting from some states. So expect a downward revision. Markets should not be reacting adversely but given the insanity, who knows.

Below is the USDX chart, with price now in the 'sweet zone' A reversal could happen but at least not immediately.

Dollar index - Wolfe Wave Pattern, 12H Chart

EURUSD - It might seem like a missed opportunity but it pays to have patience. Euro has also crossed into the 'sweet zone' with upside targets in the region of 1.37 We will have to wait and see how price plays out here. This weekend, Germany, Europe's behemoth will be heading into elections. A Pro-Merkel victory would see the ECB heaving a sigh of relief. But it could be crisis time should the opposite happen. Given the above fundamental view, sitting on the sidelines is the best bet for now.

EURUSD - Wolfe Wave, Price in Sweet Zone

USDJPY - This pair has triggered a sell and our stops reside at 100.59. The first target is going to be 95.95 followed by the final target of 90.7.

USDJPY - Wolfe Wave, in Play

It would be best to book some profits around the first target, move the trade to break even and some pips (to at least cover the negative swaps and/or commissions) and sit back and watch.

Note: I will update the trades on Goldman Sachs and Staples later today. Both of which are shaping up nicely.

Ahead of the FOMC.. this is what we're looking at!

I've been away, and markets have pretty much stalled ahead of today's FOMC meeting. Taper or not, is the big question. But if you dig deeper the answer is not straight forward, as much as we would like to. Analysts at large are hinting to a taper of 10bn - 15bn. If we read the original intent of Bernanke, we notice that he mentioned tapering would be dependent on data.

So while unemployment has edged to 7.4%, it is still short of the Fed's target of 6.5%. Inflation is also well below Fed's target with last month's inflation coming out at 0.1%. So where does this leave us?

Would the Fed taper, knowing that job participation has dropped and leave room open for more QE if the need arises or would the Fed revise its unemployment and inflation targets? And then there's also the question on Interest rates outlook as well. And last but not the least, the US Debt Ceiling is back in the picture again.

While speculation is all that we can do until the man speaks, here's a quick recap of the trades that we are watching.

The US Dollar Index

The 12 Hour chart gives us a possible Wolfe Wave pattern. It is bullish no doubt but currently the index is aiming lower. I expect a target of 80.50 to be reached (the index is currently at 81.14) before it can reverse and move higher to 83.95. The Estimated Time is 23rd October.

The Dollar Index, 12 Hour Chart - Wolfe Wave Pattern

It would be worth the efforts to keep an eye out on the Dollar Index as it can give us indications into our two trades.

USDJPY - Bearish Wolfe Wave

We continue monitoring the Dollar Yen. Recent price action hasn't been that clear for us to short this trade. The updated chart looks as follows.

There is still some move to the upside left, with the most immediate ceiling coming in at 100.584, 101.527, 103.728 and 104.351. On the downside, we're looking at 95.799, 93.773 and 90.669.

Using the Median line approach, we see price coming out of the pitchfork. Dovish comments today could set in motion the bearish move on the USDJPY.

USDJPY - Daily Charts - Wolfe Wave

Applying Fibs to the recent price move, we notice a confluence of the 50% level with the estimated price of 90.67 - 90.40. If price indeed does get bearish, an entry at 97.427 with stops at 100.583 could see us reaching the target level of 90.67 with other levels in between for scaling out of the position as price goes closer to the target.

USDJPY - Fibonacci Levels

On the contrary, a move higher is likely to see 103 being reached quite easily, provided the 100 psychological level can be taken out decisively.

EURUSD - Bearish Wolfe Wave

While the title might be misleading, in this bearish Wolfe Wave, we are looking at point 5 to be created. Thus, a bullish move before we expect price to reverse. The EURUSD has been in a continued downtrend from a larger perspective. Thus what we're actually looking at (the bullish move) is in fact a correction/pullback rather than an actual rally. Nothing much has changed in regards to the EURUSD and price action is comfortably inside the median line. So there is a probability that price could continue moving higher until it loses strength and starts to reverse.

EURUSD - Daily Charts, Bearish Wolfe Wave

All things said, more than the taper focus should be given to Bernanke's statement which could provide that much needed direction. Dovish Fed comments could keep our analysis on track, i.e: A bullish EURUSD and a bearish USDJPY, and of course a bearish Dollar index. On the contrary, any hint of hawkish comments could make us revisit the above analysis.

I'd be waiting until the statement is released before taking on any trades. Good luck!