What is the Pre-FOMC Trade?
I’m not talking about the trade you make now and hold through the decision, I’m talking about the one you make now and sell well before Bernanke & Co. make headlines.
There are two schools of thought:
1) Fade recent big moves on expectations of profit-taking ahead of a large event risk. Sean touched on this, noting that EUR/USD shorts and AUD/USD shorts are likely to be covered after the large declines this month.
2) Ride the worry trade. Unlikely but possible outcomes tend to seem more likely in the hours before the FOMC. Heading into this meeting, that means QE3. Expect to see some QE trades creep higher in the next 16 hours, that means a risk rally, dollar selling and gold climbing.