USD/JPY Will Pick A Direction After The FOMC News (Or Is There A Vision For It Already?

I admit that the title may sound somewhat provocative. It is also logical, because I know two types of traders with two different opinions regarding the role the important news events play in the movement of the financial markets.

One type of traders think that the news move the markets.

The other type think that the news are mainly a catalyst of the movement, but technical analysis is what ascertains the movement direction.

So, will the market pick a direction after the Federal Funds Rate announcement (which is expected to be hiked) or is the direction already chosen and the news will only be a catalyst?

Regardless of the amount of questions related to the situations, here is what we can see on the chart:
On the daily time frame the pair has been rebounding from the zone around 114.50 – 114.70. In my opinion, this is an obvious and strong support zone. Still, it’s not an impenetrable wall, there could be a breakout under the right conditions.

On the H4 time frame the pair has formed a pattern that strongly resembles a triangle with four points at the trend lines.

My expectation is for a continuation of the move to the upside, which could be confirmed by a breakout above the triangle. In case of a rate hike, that is the logical conclusion.

What will happen, however, if the rate remains as it is? The most probable scenario is strong volatility, which will last at least for a few hours. After that I think the pair will probably break out below the support and the first target to the downside is at 114.00 – 113.80.

FED Did Hike The Interest Rate After All

I did not believe that FED would increase the interest rate, but it did happen after all. Obviously there were good enough reasons to take such a step. What is more, FED Chair Janet Yellen announced that they are preparing to hike the interest rate a few more times in the coming year. Of course, the market reacted both wildly and adequately to these news.

EUR/USD began its fifth wave of the move to the downside which has been forming for the past few years and which resembles a large range developing in a rather clear range channel. If that is the case then we will likely see the EUR attempt to reach parity.

The USD/JPY impulse move to the upside continued. My hope is that it won’t form a higher high than the 125.854 high that was formed in June 2015. This impulse strongly resembles a fifth wave from the Elliott Wave Theory which could turn out to be shortened. For now it is too early to tell.

The Expectations Are for a Severe USD Decline

Later today the long-expected FED interest rate decision will finally be announced and after that the FED Chair Janet Yellen will hold a press-conference.

Market analysts expect FED to hike the rate from 0.50% to 0.75%. My personal expectation is that the interest rate will remain as it is. I have several reasons to think so:

- On 20th January 2017 the US president-elect Donald Trump will be inaugurated. It’s public knowledge that Mr. Trump has both internal and external policy views that are completely different from those of the current American president. In my opinion, an institution like the FED wouldn’t take such an important step right in the eve of such major political changes.

- I also think that the rumour about an interest rate hike has already been overbought and the dollar should begin a necessary correction.

- And last but not least, in the end of the year the long-term investors will wish to take their profits.

- Regarding the pair I have been watching the most lately – USD/JPY – and which I intend to trade today after the news come out all I can say is this:

The divergence on the daily time frame remains and it is an unambiguous signal for a move to the downside. The bars at the end of the rally are also a signal for a drop – they have become small, there is a tiny marubozu that formed after the market opened on Monday, and there are a pair of spinning top bars as well.

I wish all traders luck and success today!

USD/JPY and EUR/USD before the Possible Interest Rate Hike

In little over than two days we will find out whether the long-expected FED interest rate hike will become reality or not.

The closer we get to the announcement, the less volatile the markets will become while waiting for it. What seems obvious even at this stage is that the rate hike seems to have already been traded. The USD/JPY pair rallied for over 1500 pips without a correction, and in the past month and a half EUR/USD dropped with over 800 pips. Even if FED does hike the interest rate, in my opinion, the strongest effect will be highly increased volatility but the USD rally won’t likely continue without a serious correction.

If there is no rate hike, however, we could see a trend reversal and a USD move to the downside.

USD/JPY seems to be already preparing for a drop, considering the RSI divergences on the 4H and daily time frames (the latter will be confirmed when today’s bar closes).

EUR/USD formed an inverted doji bar with a very long shadow on the weekly time frame and it also looks ready for a rebound.

Will USD Keep Rallying?

Next week we will receive the answer to the question that occupies the minds of all analysts, investors and traders: “Will FOMC hike the interest rate or not?”

Whether the USD will continue to dominate all other financial instruments or there will be a new “anti-dollar” trend depends on that answer.

By looking at the EUR/USD charts with or without a rate hike I would say that from a purely technical analysis point of view it is logical to expect a move to the downside, perhaps towards parity or even a little below parity.

Whenever the USD is strong Gold stops being a shelter in the storm and this is exactly the case. The precious metal is falling towards the support at 1,025 and unless the interest rate remains the same it will likely reach that level.

What is the situation with USD/JPY? Despite all the RSI divergences all the expectations for a correction so far prove false.

Today the pair formed a new high and it is clearly climbing towards 115.50 or even higher. More importantly, it has become clear that this impressive rally is an impulse and not a correction, and that is likely not the B wave of a correction, as I thought it was up until recently. The impulse to the upside resembles everything else but a B wave.

Either way, the FOMC meeting will solve this mystery and it will make it clear whether this rally will continue and how high it will climb.

The Market Is Preparing for the FOMC Interest Rate Hike Announcement

Although the USD is still in full control and all USD-related currency pairs are moving in its favour, I keep thinking that it is time for a reversal.


That could happen on the 14th December, when FOMC will announce their decision about the interest rate hike.



As I watched how all participants in the currency markets were buying the USD so aggressively I kept thinking that there would be no such hike and FOMC will leave it unchanged for now and that the market was preparing for this by buying the USD.

Today the US Non-Farm Payrolls were announced and contrary to all expectations, they had no effect on the market. Obviously the market participants have already traded the rumours about the interest hike and later they will have to trade the actual news too, when they come out.

As they saying goes “Buy the rumour, sell the news”. Naturally, everyone’s focus is aimed in that direction.

I think that there will be a USD drop and it will be powerful but short-lived but it will affect all USD-related instruments. Personally I am already preparing for this and I have begun opening positions against the USD.

I hope I’m not wrong.