As a result of the US debt rating downgrade from AAA to AA+ (last Friday), we started the week with a gap. By the way, we saw exactly the opposite of what should have happened. On Monday, investors instead of getting rid of US bonds, etc (selling them) they ended up buying more, as if the US debt rating went from AAA to AAAA (there is no AAAA debt rating though). This is the probe sometimes fundamentals are not in line with market movements, I’ve seen this over and over again in the last year or so… So if you are still trading on fundamentals, give it some thought, alright?
Anyway, Monday and early Tuesday was perfect for Forex traders, the market swings were smooth and clear, and what’s better, I was able to profit from them. I took two trades, I got stopped out on one of them around the breakeven level (if I didn’t move my SL level it would had hit my take profit order) and the other one hit my TP order. So I’m up about 3% for the week.
Then on Tuesday, everything changed… the US interest rate was released (there was no change, still at 0.25%). But what was important about the announcement was what they mentioned about the interest rates for the coming years: they will hold interest rates this low for at least 2 more years. What they are really trying to say is this:
Hey, we (the FED) expect the economy to remain sluggish at least for the next two years. Don’t be surprised if you see continued high unemployment, low domestic economy growth (or even stall), etc.
And how did the Forex market react to this? Large and undefined (and difficult to trade) swings on most currency pairs and crosses. From Tuesday to Friday most currencies traded on a undefined range, being very difficult to trade them (at least with consistent results), so guess what, I stayed away from the market since then.
But I think things will clear up next week, the market cant trade on undefined ranges for ever, sooner or later we are going to see breakouts of these ranges, and we need to be there, we need to be able to profit from them, and this could happen the week ahead.
Let me know what you think!
Have a good weekend!