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No breakouts here, move along now.

by Rafael Rosa on November 1, 2010

caged bear No breakouts here, move along now.

Today is  t-2 (“t minus 2″), with t being Christmas for traders. On Wednesday, Santa Fed arrives at our chimney.

Some people expect a big gift while others believe Santa Fed will disappoint. Speculation is all the rage and everyone has an opinion on what will happen. They all want to guess what’s in the box before the wrapper is taken off.

It seems like a lot of people are looking for breakouts in the FX market today and tomorrow. I don’t think it’s going to happen. No sane FX trader is going to take new positions over the biggest event risk of the year. Not only is the size of QE2 an unknown factor, but the market reaction to the Fed action is another wild card.

It’s time to welcome range trading and the occasional fake breakout for the next 48 hours. Sell the top and buy the bottom. And during the FOMC release, be flat. Digest the data and watch the market reaction. There is no need to jump in 5 seconds after the announcement because the waves created by the release will last for the whole week and more.

In the Euro-US Dollar, watch the triangle formation on the hourly. Price compression before a HUGE event makes sense. The pair is likely to drift between 1.3700-1.400 on a broad sense,  with a tighter metric being 1.3850-1.400.

Click on images to see FULL-SIZED charts.

EUR MIA thumb No breakouts here, move along now.

The Aussie Dollar fluctuation is up in the air because the RBA interest rate decision comes out tonight. Enough said.

For Cable, a break of 1.6100 seems unlikely. The pair will probably hold the 1.5900-50 zone, with strong support at 1.5840.

GBPUSD thumb No breakouts here, move along now.

Lastly, remember that the US Dollar has the upper hand going into the FOMC meeting. The US Dollar shorts are already at extreme levels and it is unlikely that investors would be adding to that pile before the announcement of QE2.

Thus, it would not be surprising to see a breakdown of the Euro, GBP, AUD, CAD, or JPY against the Greenback until Wednesday. It could merely be from investors closing out their short bets on the US Dollar and staying in the sidelines.

Play small, play tight, and limit your risk. Christmas is almost here.

Technorati Tags: AUD/USD, aussie-dollar, cable, euro dollar, eurusd forecast, Forex Trading, fx trading, GBP/USD, gbpusd range, range trading, us dollar

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