Let’s take a look at the history about this rate hike. Many traders know that the US has been in a ZIRP (Zero Interest Rate Policy) for 8 Years. We have seen the bottoming of interest rates since July 15th last year. The 10-year Treasury Notes hit 1.35%. It is only the 2nd time this has happened over the previous two decades. Who would have thought that over the next 6 months the 10-year treasury bonds would double the yield from 1.35% to 2.6%! Quite an unprecedented move. It is obvious that the election results on November 9thhad a big impact on this.
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. It 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, the income is still taxable at the Federal level.
The U.S. Treasury also sells Notes with two, three, five and seven-year terms. 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. These 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.
This is the first time we will see a non-December rate hike and Platinum Analysts are of the view that these rate hikes will continue it reaches 1.50%. This is to not only get ahead of recession but also beat inflation.
Platinum analysts suggest that traders should be getting used to the periodic Fed rate hikes for the rest of the year and a rise in the Dollar in accordance with our Dollar Bull Run Predictions.
Yellen has made a solid affirmation of this rate hike in her speech two weeks ago. The Wall Street boys are just loving everything that Trump is doing and this is due to a dramatic change in policies and this is something that Yellen did not want to do. Love him or hate him, his strong tax-cutting proposals and massive infrastructure spending proposals are creating jobs and uplifting the economy.
One thing is for sure that Donald trump has placed a spotlight on the fiscal policies and is doing a good intermediate job in my opinion.
Despite all of the above-mentioned fundamentals, why is the Dollar still slipping and is in a state of confusion?
How to Trade the FOMC Rate Decision
Now that you are aware of the past and the importance of the event, let’s move on to how to trade the event.
MONDAY the 13th of March: RANGE BOUND DAY – Implement Trap Zone Strategy.
TUESDAY the 14th of March: RANGE BOUND DAY – Implement Trap Zone Strategy.
WEDNESDAY the 15th of March: Markets will WHIPSAW – Use the Platinum FOMC Trading Strategy.
THURSDAY the 16th of March: Markets will continue the trends. Keep a watch out for the 38.2% Fib Level.
FRIDAY the 17th of March: Cease trading at 15:00 and only aim at buying and selling rallies at the end of range.
We briefly discussed trading the trap zones along with few example trade charts in one of our previous blog posts a few weeks ago about this event.
If you would like to the discuss the trading strategies for the event and the exact trade plays with a Professional Trader/Mentor, please do not hesitate to book your consultation session.
This is a risk event. We suggest you use no more than 1% of your risk capital overall of your personal trading account.
- Know the ranges of your currency pairs.
- Know the critical times to stop trading.
- Never revenge trade.
- Do not trade after 15:00 on Friday the 17th of March.
- Do not attempt to 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.
Scenarios and Currency Pairs
A) The Fed increases the interest rate as anticipated.
Expect an initial spike on Dollar pairs such as CHF, Yen, Cad and Gold to no more than 60 pips and then a reversal. Don’t let this surprise you as this is just profit taking.
B) The Fed does not increase the interest rate by 0.25% but promises an increase in the coming months.
In our opinion, there is only 5% chance of this happening. If it does, get ready for the Dollar to dive into the abyss. Pairs such as the Euro could end up 200 pips up and Yen around 300 pips down within a matter of hours. You have to be a seasoned trader to trade this as you should be using the 38.2% Bank Stop Loss Hunt Levels as buying and selling levels. The only other strategy that you should be using in the above situation is the Extreme Zone strategy.
C) The Fed increases the interest rate and also promises another hike in the very near future.
This would be the most favourable scenario for all traders. It will break outside ranges and have trend continuation. If this happens, you should be ready to be 100% Bullish. Only look for Long entries for pairs such as Swiss and Yen, Short entries on the Euro and Aussie.
The Aussie Dollar has capped at the 7777 level just as we had mentioned in our blog post “AUD/USD – Trading the RBA Interest Rate Decision“. If the Indices start to drop, the commodity currencies will tank. An important level to look of for shorting Aussie is sitting at 0.7640.
Do not trade this pair this week. You can get caught up between Brexit, the Fed, and bad fundamental news.
The Euro has turned Bullish. The question is how long? Platinum Analysts are looking at selling rallies on the Euro. The next level of selling should come in around 1.0825. Buying levels of 1.0620 could hold until Wednesday the 15th of March.
The Platinum Way
Are you chasing the Markets? You have to let the Markets come to you. If you do not, you run the risk of placing your broker account under so much pressure that you might end up blowing your account.
We trade the Institutional Way by letting the market come to us and being patient. Being patient will always be a virtue and it’s no different in the FX market.
Basically, as with all things related to Forex trading, it is the seemingly boring repetitive actions and controlled emotions that give you the edge as a trader. Do not veer away from the tried and tested repetition. It works.
Beginner level traders must accept the fact that they may make numerous losses. At Platinum Trading Academy, we understand these issues and our Trading Mentors guide all our members with one-to-one support to help master and dominate this aspect of trading.
Often individuals who are into trading, come from very successful lives where they are not accustomed to failure and therefore may not know how to deal with it. A trader who is educated the Platinum Way always knows when it is the right time to exit a position when the losses are mounting or even when the profits are soaring.
Download a free ebook to read about how to trade different currencies through different months of the year and various trade patterns. You might also like watching Trades of the Week Videos in our video gallery. Subscribe to Platinum’s Forex Newsletter.
While you gear up to trade the US Federal Interest Rate Decision event, don’t forget to take advantage of the Yen Trade that could make 1000 PIPs.
Wishing you all the best.
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The information you’ll find in this article is for educational purpose only. We make no promise or guarantee of income or earnings. You have to do some work, use your best judgement and perform due diligence before using the information in this article. Your success is still up to you. Nothing in this article is intended to be professional, legal, financial and/or accounting advice. Always seek competent advice from professionals in these matters. If you break the city or other local laws, we will not be held liable for any damages you incur.