Dear Futures Trader,
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FOMC Statement tomorrow:
Interest Rates/Credit Markets – Traders expect the Fed to detail tapering of asset purchases at the FOMC meeting this week.
Traders will pay close attention to the headline change in non-farm payrolls. The expected number is 400,000, up from 194,000 in September. A weak jobs number could have traders positioning a bit sooner for a fed fund rate increase.
Goldman Sachs thinks the Fed will raise its benchmark from a range of zero to 0.25% soon after it stops tapering its asset-purchase program. A second increase will follow in November 2022, and the central bank will then raise rates two times a year after that.
We are expecting the Fed to concede to inflation cryptically in the next few months. Plan on hearing more about multi-year low inflation, historically low interest rates, and only a tiny whiff of inflation.
The following are my PERSONAL suggestions on trading during FOMC days:
· Reduce trading size
· Be extra picky = no trade is better than a bad trade
· Choose entry points wisely. Look at longer time frame support and resistance for entry. Take the approach of entering at points where you normally would have placed protective stops. Example, trader x looking to go long the mini SP at 4325.00 with a stop at 4319.00, instead “stretch the price bands” due to volatility and place an entry order to buy at 4319.75 and place a stop a few points below in this hypothetical example ( consider current volatility along with support and resistance levels).
· Expect the higher volatility during and right after the announcement
· Expect to see some “vacuum” ( low volume, big zigzags) right before the number.
· Consider using automated stops and limits attached to your entry order as the market can move very fast at times.
· Keep in mind statement comes out at 1 Pm Central time, the news conference which dissects the language comes out 30 minutes later so the volatility window stretches out.
· Know what the market was expecting, learn what came out and observe market reaction for clues
· Be patient and be disciplined
· If in doubt, stay out!!
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