How to Trade the FOMC Announcement
FOMC Forex Trading Strategy
Good Morning subscribers,
The Federal Reserve will hold arguably its most important policy meeting in years on Sept. 19-20, with markets waiting to see if the central bank raises rates yet again and/or begins to unwind its massive balance sheet.
Platinum Analysts are not expecting the FED to increase rates this Wednesday but on the contrary, they will be looking at pulling the trigger on the shrinking balance sheet.
Platinum Analysts will be observing the 10-Year Treasury Note very closely.
What is a ’10-Year Treasury Note’
A 10-year treasury note is a debt obligation issued by the United States government that matures in 10 years. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity. An advantage of investing in 10-year Treasury notes and other federal government securities is that the interest payments are exempt from state and local income tax. However, they are still taxable at the federal level.
BREAKING DOWN ’10-Year Treasury Note’
The U.S. Treasury also sells notes with two, three, five and seven-year terms. All of these notes, along with Treasury bills and bonds, can be purchased directly from the U.S. government through the Treasury Direct website via competitive or non-competitive bidding with a minimum purchase of $100 and in $100 increments. They can also be purchased indirectly through a bank or broker. Investors can choose to hold Treasury notes until maturity or sell early. There is no minimum ownership term.
The Money hours for the 20th of September 2017 starts at 19:00 GMT and the events to trade are down below:
U.S. FOMC Economic Projections
As traders, you will know that the FOMC raised the interest rates by 25 basis points to 1.25% just as the markets expected.
A Quick overview of the Fomc Economic Projections are as follows:
- Fed Expects GDP Growth of 2.1% to 2.2% in 2017
- Unemployment from 4.2% to 4.3%
- Inflation range would be between 1.6% to 1.7%
If we see any changes since June in these projections which are very doubtful as most of these have been revised to the downside, we could see some massive swings in the Dollar.
U.S. FOMC Statement
The Federal Open Market Committee releases a total of eight statements every year. In the year 2017 after the zirp ending in December 2015, the Statement has minor changes and as a note of observance every time. In addition to providing details about the outcome of the members’ vote on interest rate and other policy measures, the statement also includes a commentary on the economic situation that influenced the members’ decision. More importantly, the statement discusses the country’s economic outlook and provides clues on the direction of interest rates in the future. Platinum analysts are expecting No Change in the Statement. If there is a surprise rate hike the market could see over 300 pip moves in the 6 majors.
U.S. FOMC Federal Funds Rate
There have been various rumours about another rate hike before the end of the year but platinum analysts do not think the time will be now. The one thing that the FED will be looking at very closely is to start reducing the US $4.5 trillion portfolios as early as possible. Till now most of you will be accustomed to the term Quantitative easing this is called quantitative tightening. As a trader, all you should be looking at is when will the next interest rate hike be and watch out for that slippery comment from the FED!
Now that you are aware of the importance of the event let’s move on to how to trade the event:
WEDNESDAY the 20th of September: Markets will WHIPSAW: Use The Platinum FOMC Trading Strategy
THURSDAY the 21st of September: Markets will continue the trends watch out for the 38.2% Fib Level
FRIDAY the 22nd of September: Cease trading at 15:00 and only aim at buying and selling rallies at the end of the range.
STRATEGIES FOR TRADING THE FOMC:
This is a risk event and we suggest you use no more than 1% of your risk capital overall of your trading account for your personal trading purposes.
Important Pointers for traders:
- Know the ranges of your currency pairs.
- Know the critical times of when to stop trading
- Do not revenge trade
- Do not trade GBP/USD between 16:00 and 17:00.
- If you are new to trading take out 50% of your balance to protect impulsive behaviour and risk.
Strategies to be used
Here are three scenarios for the marketplace:
Strategies to be used
Here are three scenarios for the marketplace:
A) The FED does not increase the interest rate by 0.25% but promises an increase in the coming months. If the above scenario happens which in our opinion we could see an initial spike down on euro, cable and vice versa for the swissy and yen and then we could see trend continuation for the next three days.
B) If the FED increases the interest rate then we shall see the dollar charge and a move of over 200-300 pips on the euro and sterling but this is not anticipated by Platinum Analysts. This would be a scenario which could be a massive payday for all traders as we will break outside ranges and have trend continuation.
If this happens then you should be ready to be 100% Bullish and only look for long entries on Pairs such as Swiss, Yen and Short entries on Euro and Aussie.
C) The FED promises another hike in December then we will see will see a whipsaw in the market and not considerable change in market conditions. Expect an initial spike on Dollar pairs such as CHF, Yen, Cad and Gold no more than 60 pips and then a reversal doesn’t let this surprise you as this is just profit taking.
Learn How to trade GBP/USD
The British Pound has made a major bullish move post-Bank of England’s Rate Decision. Platinum Analysts have a bullish view on the British Pound and will be looking at Buying Dips. Do not forget the two most critical hours not to trade cable are 7:00 to 8:00 GMT and 16:00 to 17:00 GMT. Since the start of the week we have seen a minor retracement Cable for our premium levels on cable please contact us for a Premium Cable Trading Session.
How to become a profitable Trader.
By any chance, if you are a new trader and would like to learn how to trade, then sign up today to our 2-day free Foundation to Forex Trading Course. We have just introduced this as in the last month we have had a lot of inquiries on learning how to trade the financial markets. We can get you on the successful path of becoming a Financial Trader.
Hopefully, you have enjoyed today’s article as much as I have enjoyed writing it and have gained great knowledge about trading and how to trade.
See you soon!
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Have a fantastic day!
Live from the Platinum Trading Floor.