Is a December Rate Hike Fully Priced Into the US Dollar? | Vantage FX

Is a December Rate Hike Fully Priced Into the US Dollar?

December 13, 2016

From Danske Bank:

“In line with consensus, we expect the Fed to raise the Fed funds target range 25bp to 0.50%-0.75% from the current 0.25%-0.50% at the FOMC meeting next week, as economic data have improved, the labour market is tightening and financial markets are calm. Markets have fully priced in such a rise.

Since everyone expects a Fed rate rise, the most interesting question is how many hikes to expect next year from the Fed. We expect the median ‘dots’ to stay unchanged, signaling two hikes in 2017 and three in 2018.”

USDX Daily:
Click on chart to see a larger view.

The concept of data or monetary policy being ‘fully priced in’, is for me the most interesting aspect of financial markets. Profitable Forex trading isn’t about a deep understanding of economics, it’s about understanding human behaviour.

As a trader, there is one main question to ask heading into tomorrow: In which direction would the market be disappointed and forced to significantly reprice?

For me, with the US Dollar at all sorts of resistance, a bearish scenario would play out if we saw some overly dovish projections for 2017 and 2018.

We spoke yesterday about USD/JPY reaching the first real post-Trump resistance level and this all ties nicely into the bearish scenario that we would rather be there to take advantage of above.

The initial play was to look for a rejection out of this higher time frame resistance level and then look for an intraday retest of short term previous support as resistance to enter into shorts.

USD/JPY Daily:
Click on chart to see a larger view.

As you can see from the daily chart, price wicked into our resistance zone and closed below. Quite the textbook bearish signal… well if there was such a thing as a ‘textbook signal’.

USD/JPY Daily:
Click on chart to see a larger view.

Zooming into an intraday hourly chart and you can see the types of re-tests that we look for to get entries that offer the best risk:reward ratios. If you want these big R:R trades, then you have to put yourself in a position to take advantage of them.

Do you see further opportunity trading around FOMC? Open a demo with Vantage FX and experience the difference for yourself.

Dane Williams – @VantageFX

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