Trading EURUSD and USDCHF Following FOMC

USDCHF 4-Hour Chart ahead of FOMC

Opening a 4-hour chart and flipping through the pairs reveals a lot of ranging activity–some short-term, some long-term. The market is waiting for a catalyst, some indication of whether the US still thinks they will raise rates. I think it’s unlikely to happen soon. With the USD having just witnessed a week of strength, if the FOMC hints at not hiking for a while then the ranges will continue. The USD will fall and currencies like the EUR, CHF, NZD and JPY will rally. If they do talk of raising rates relatively soon, the USD will be the one to rally.

Luckily traders don’t need to listen to what they say. The price lets us know. Here are the levels to watch in the USDCHF and EURUSD during today’s FOMC statement

USDCHF

This pair is trading in a resistance range between 0.9840 and 0.9903. It is quite likely the price could see a breakout above resistance. The question is, will it stay above? I think the possibility of a false upside breakout is high. Just following the announcement watch for a jump above resistance and then a retreat below. That’s the short sell signal. It’s volatile so attach a stop loss to the trade immediately; it should be above the high which just occurred. It can be a short-term trade or a longer-term one. A long-term rising trendline intersects near 0.9550. Place a target above near 0.96. That should provide above a 5 or 6:1 reward:risk…for longer-term traders.

The price is already in the resistance zone, so if it just drops right away, switch to a smaller time frame and look for an entry on a pullback intraday. Alternatively wait for a shorting opportunity on the longer-term time frame once a downtrend begins.

USDCHF 4-Hour Chart ahead of FOMC

USDCHF 4-Hour Chart

There is the possibility the USDCHF could break above this big ascending triangle as well. In that case I prefer to leave the trade alone for now. Let it run to the upside, and then buy a pullback in the future.

EURUSD

The EURUSD is in a similar position…sort of. It dropped below support recently but hasn’t moved much since–no follow through. That follow through may still be coming, but if the FOMC hints at not hiking rates soon, then EUR is likely to start retracing the losses it just sustained in the past week.

There is a consolidation between October 23 and October 26 and the price has just jumped above it. This could set up well for a long, but there is very often a false breakout in the opposite direction before a real move. Therefore, I’ll be watching for a quick snap lower to just below 1.10 and then rally back to the upside. If that sell off doesn’t occur, and the price spikes instead, then switch to a smaller time frame and look for an entry opportunity on a pullback.

EURUSD 4-Hour chart ahead of FOMC

EURUSD 4-Hour Chart

What if the price drops? That’s a possibility, but I’m not trading it if it occurs. The price action has been so choppy and there isn’t as much room for the price to move on the downside as there is on the upside. Day trades will definitely be considered on the short and long side, but for swing trades that could last a week or more, trading on the short side isn’t of interest at the moment. The price is also right along the longer-term rising trendline, which favors long positions.

Final Word

There are also recent ranges in the NZDUSD and USDJPY. They provide similar type trades. There is no reason to trade all these pairs though. Decide which one you like–they are all trading near nice support/resistance levels–and formulate a plan based on which direction you want to be going, what conditions define your entry, how you will manage risk and how you will get out.

Trade on your own terms. Only take a trade if the market aligns with how you want to take a trade. If it doesn’t, leave the market alone as there will always be other opportunities to get in.