At the start of the week we alerted on a buy opportunity for the EURUSD. It was based on technicals, but we were very mindful that at 2pm ET today, Wed December 13th, the Fed would announce the interest rate decision. The rate was set at 1.25% prior to the announcement, and the market expected a 0.25% increase. The Fed did exactly what the market expected.
Normally a rate increase is seen as adding strength to a currency, so that means we should short the EURUSD, right? Then why did we go long? Simple.
- The Technical Analysis told us to. Price was just above significant support, which we deemed had a high probability of holding strong (it did). We set our stop well below that support. Subsequent price action came within 20 pips of our stop then reversed.
- The market had been expecting the 0.25% increase for months, so it had already priced it in. Why? Because the Fed had already stated that there would be one more increase by end of year, and Dec 13th was the very last chance to execute it. This meant that even if everything had played out as expected, the dollar wouldn’t strengthen significantly, because it had already done so.
- Had the Fed not delivered the increase, the dollar would have massively weakened (because of numeral 2), and the EURUSD would have shot up.
- Even with the increase as expected, any dovish comments (there were quite a few), as well as the fact that Janet Yellen is leaving her post as Fed Chair, would still weaken the dollar though not as drastically as in the prior scenario (numeral 3).
Right now our trade is up by some 30 pips and we’ve moved the stop to breakeven. the London Open later tonight will likely give us more pips and maybe pick up some speed, to hit our target. Either way, this trade is now lossless for us no matter what. The kind of trade we love.
Keep in mind that tomorrow has similarly significant fundamental announcements coming from the ECB and the BoE. And we’re already in a trade with no possibility of a loss. You can’t ask for more in this business.
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