Looking for the FOMC catalyst to lead to a move and extension.
The EURUSD has been consolidating in a narrow trading range this week. The range is 140 pips. With the week half way over that range - if it stood - would be the most narrow of the year (the low is 173 pips this year) and the most narrow since Christmas week. Before that you have to go back to September 7.
The midpoint of the week is 1.12588. We are not far from being in the middle of that range. The midpoint of the range since the Employment day low is 1.1217.
So, guess what? If you believe - like I do - that the market WILL NOT have a year record low trading range of 140 pips this week, we will extend above 1.1329 or below 1.1189 today, tomorrow or Friday. So we have targets above and below to shoot for. With the FOMC on tap today, today seems like a logical day to extend (kinda stating the obvious but....). It might take until the Fed time to do it of course. What will Yellen say? What will the projections be? What will the market reaction be?
What else do we know.?
- The 100 and 200 hour MAs are near converged at 1.1243-46. This is the first major target on the downside.
- The midpoint of the range since the Employment day low is 1.1217. We are above. That will be another target below. That is near an upward sloping trend line will be around 1.1224-25 at the time of the Fed decision.
- The 1.1189 (blue circle 4) is the low for the week. If the price goes lower, we should go below it.
- The low from last Friday was 1.1150.
If the comments are hawkish (a September hike is happening and the projections are not materially different - just some confirmation would be nice I think for the USD), think 1.1150 (and below). That target level would get us just above the most narrow trading week of the year at 173 pips. So it is a doable target on a hawkish Fed scenario.
ON the topside (more hemming and hawing scenario, and projections weaker):
- The high for the day at 1.1291.
- The trend line connecting most recent highs (at 1.1312 - will be a few pips lower by the FOMC time).
- The high for the week at 1.1329
- Then 1.1350 area and
- The dual highs at 1.1380 to 1.1385.
If the price were to make a run toward the upside, the move would give us a week's trading range of 198 pips. If you recall we had 4 trading days this month with a days range over 200 pips. So, again not out of the question that on a Fed that is not intent on a September liftoff might see a liftoff of the EURUSD to that level - and even beyond.
In either scenario, the roadmap levels will be eyed, for levels to get through - and stay through (they help define risk and give us the roadmap).
Speaking of risk, there is plenty of it. The Fed comments from Ryan's post where most voting members (all?) say "if we continue....a liftoff (I am beginning to dislike that word) will be by the end of the year", suggest they could continue that course. I would think that the Fed would want to give a two meeting cushion. So the market is thinking this one, should be the one to be clear. It is coming. It is not coming.
Between now and the FOMC time the market will likely trade in a choppy up and down action. The 100 and 200 hour MA are converged below, so look for day traders to lean against it as a low risk trade. Any position into the decision is a coin flip (gamble), but there should be room on trade after the news is known and the roadmap will provide the clues.