Put on a cynic shrewd trader’s hat and let’s think about the trading odds. Fed hike scenario is at play now and we have been here many times before. But well, maybe this time it could be different and we are not denying that. So let’s think about the possible outcomes in order to exploit future opportunities.
- Fed chickens out as usual
Most probable outcome if equity markets keep on kicking and screaming without respite. Like obdurate disobedient kid, market won’t let the Fed escape easily. Fed won’t be able to wean the equity markets off from free money without some serious downside risks. And if equities are in red more than double digit percentage points then we are almost sure that there won’t be any hike at all. So in this case, US Dollar will be sold off heavily.
- Rate hike
If Fed puts on green goggles and decides to lift the rates a bit from floor then it will be gesture of showing finger to the markets and Yellen whispering go to hell in the market ears. Ok so now Fed has hiked the rates, now what?! Will they be able to continue walking the same path every six month?!
As the things stands now, this hike is going to be a one off. And that does nothing to abate the yield advantage Australian Dollar and New Zealand dollar presents. Even New Zealand PM John Key has address the news conference today saying strong dairy sector outlook is boosting the NZD. Thus, ladies and gentleman the rate hike will be a dip to buy AUD/USD and NZD/USD at cheaper levels. Even GBP/USD can go on sell during that time.
Whether Fed hikes or not, volatility in Forex trading is always welcome. And when we know that USD buying won’t be able to sustain the momentum in long run due to fundamental rate disadvantage against AUD and NZD, be prepared to buy the good dip 🙂
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