Fed Week – Don’t Be Caught Off Guard

The US policy statement out later this week is once again high on the priority list for discussion by Forex traders. Almost every Fed watcher and savvy trader will tell you “it’s a no-brainer” if US interest rates are set to go up then there is nothing else to do but buy the Greenback across the board because the US Dollar bull run will keep gaining steam and there is nothing that can stop it.

Wait A Minute…Not So Fast

Let’s take a quick tour down the road of Fed rate-change history and consider a few things. Firstly – as a veteran trader of almost 20 years, one thing I have learned and it never ceases to amaze is the statement “buy the rumor and sell the news” which means simply that the smart money is always ahead of the game. In this case, if a suspected rate hike is imminent, those in the know will always make their move ahead of time and before the herd even starts thinking about it; hence “buy the rumor.”

Then when the news breaks, the smart money offloads and SELLS to the rest of us. Let’s analyze this; for the last 18 months we have all been Fed watchers hanging onto every breath Janet Yellen takes with some hint as to market direction and will they or won’t they. Bottom line: The Greenback has had a huge rise over this period in anticipation of some tightening by the Fed.

So, other than a significant increase (which just won’t happen) a possible small upward adjustment has already been factored in as a done deal before the end of 2016– and yes there will definitely be some knee jerk reaction but I don’t think it will be much to write home about. The rumor has been bought and sold a few times already. By the way, FOMC (Fed) chair, Janet Yellen, will also be releasing projections for 2017 and beyond on Wednesday September 21st.

Hindsight Is 20/20

To further back up my earlier statement we have a quick look into the history of Fed tightening over the last over the last 20 years which supports the theory – there has always been a run up prior to Fed tightening and once announced the Greenback has sold off fairly sharply.

This is exactly what happened in 1999, a famous rate-hike year, when we had an initial explosion upward of the USD and within months we had a sharp selloff. Take into consideration of course that the sell-off occurred shortly after we had the dot.com collapse which placed downward pressure and then a little over a year later we had the gut wrenching 911 World Trade Tower attacks.

Where To From Here?

It’s simple, our trading team at ForexSignal.com does not try to outsmart the markets or second guess direction. The market provides enough information to tell us where it’s more than likely going. When our criteria are confirmed, we are happy to send Forex signals to Forex traders all over the world.