Dollar Hollar: 4% Chance Of October FOMC Halloween Surprise

Tonight we will get the policy decision from October FOMC two day meeting. The market is overwhelmingly uninterested in the meeting as it perceives there will be no move from this meeting underpinned by the fact that there is no press conference to follow the statement release and there isn’t to be any update to FOMC projections for economic conditions, inflation or the much watched ‘dot plot’.

Fundamentals

The pause in the global growth concern narrative hasn’t dissipated significantly enough, nor has the domestic data stagnation recovered for the FOMC to feel sufficiently confident that overall conditions have improved to the point of prompting action.

Fed Funds data as provided by the CME group suggests most market participants now look to the December meeting as giving the highest probability for action in the remainder of 2015, with most pushing probable expectations out to 2016, as the pricing for a December move has dropped below 50%.

Tonight’s statement will be parsed by traders for any clues that could dramatically move the dial on the December expectations which have had a dovish lean post recent meetings. Traders are cautious especially in light of the moves by other major central banks in recent weeks which have had a significant easing bias, just last week the PBOC cut RRR, just a couple of days after ECB President Draghi gave his clearest direction that the European Central Bank stand ready to act in December. The other major player on the global central bank circuit the BOJ are on deck later this week with many looking for some indication that there is more easing to come from them.

The market currently sees limited to non existent potential for the FOMC statement to deliver any material ‘hawkish’ surprise in the statement language. Players should be cautious of the asymmetric nature of this risk as it isn’t unheard of for a market positioned heavily in one direction on a binary outcome to be prone to positioning shocks. However as the FOMC will only be releasing a post decision statement this week it reduces the scope for the FED to meaningfully communicate a change or the likelihood of a change in its policy stance. So for now USD bulls will take heart in the adage less is probably more, as the statement inst likely to meaningfully move the dial in either direction.

So the net outcome of the minutes is likely a continuation of the status quo, with FED speakers taking every opportunity to reassure the market that 2015 is still live for a rate move ‘IF’ the data supports action. So where does this leaving the technical trading opportunities in the week ahead, lets jump into the charts and take a look.

Technicals

In last weeks technical update I had highlighted a pattern that I was tracking on the daily charts, you can see from the chart below that the pattern was invalidated and it didn’t produce any intraday reversal patterns to trigger and entry for me.

2015-10-28 09_35_09-

So now I am looking at alternative set ups. From the current impulse extension there is an immediate AB=CD symmetry objective which targets the July highs at 98.00. This level is also confluent with the descending trend line from the February and April high connection.

2015-10-28 09_46_17-

I will be monitoring intraday reversal patterns against this level to enter short positions leaning against the August highs. If this pattern plays out I would anticipate that price rotates back to the apex of the range at 95.00 which will become the decision point for the market if this level and the ascending trend line just below, supports the market, then bullish pressure could develop to target and upside break of the six month range consolidation in a bullish continuation pattern, as highlighted in the chart below.

2015-10-28 10_02_52-

If the apex and ascending trend line fail to support the pullback without producing any intraday reversal patterns I will remain short and target the lower end of the six month range back towards the 92.00 level where I will reassess the patterns and price action as mapped in the chart below.

2015-10-28 10_06_22-

Those are the price patterns I am currently tracking. Obviously there is a real possibility that price doesn’t react at the levels I have highlighted and the current impulse move extends and takes out the August highs unabated. Under these circumstances I will monitor the move and in next weeks update will highlight entry opportunities to take advantage of an upside extension and acceleration.

In the interim to follow my views on the USD which I will be updating more regularly from November 1 on my twitter feed @LFXPatrick