It's safe to say that right now, on the evening of Tuesday, June 23, the question on most forex traders' minds is, "What will the Federal Reserve do with interest rates on Wednesday afternoon (June 25): raise, lower or keep them steady?"
A rate hike would be considered bullish for the U.S. dollar, while a rate cut – bearish.
And all I want to say to that is – if only it were that easy.
Remember April 30, 2008? That's when the Fed last cut interest rates, by .25%. Bearish news, no question about it – but what did the USD do? First it rallied, then it fell, and then the next day, May 1, it rallied some more. And if you've traded forex for while, you can remember many more examples like that.
What complicates matters even more for Wednesday is that in polls, forex analysts unanimously say they expect the Fed to keep interest rates steady. I guess we'll just have to listen to what Ben Bernanke says in his announcement and try to read between the lines.
Unless, of course, instead of listening to Bernanke, you try and listen to the market itself.
"The Wave Principle is based on a set of pre-defined patterns that unfold at multiple degrees of trend and fit together is specific ways. Sitting down Monday morning [June 23] and looking at the charts… instead of speculating on what might be happening, I drilled down to a smaller time frame and identified those same patterns I normally look for on the daily and hourly charts – but this time I dropped down to even shorter time frames.
"[That allowed me to] identify a rally sequence nearing an end, [and] I warned that regardless of the larger trend the dollar was positioned to give back at least a portion of its gains. And that is exactly what happened over the remainder of the day: the dollar softened.
"…the knowledge that the patterns we search for unfold on multiple time frames allowed me to offer useful information to readers while we waited for the larger picture to unfold.
"As I write from time to time, I can only take what the market is willing to offer. And that means being willing to operate on different time frames, going where the patterns are clearer and considering how those patterns, assuming they unfold as expected, affect the larger and smaller trends within the market. ...JJM..."
That's an excerpt from a Market Insight comment that Jim Martens, the editor of Elliott Wave International's Currency Specialty Service, posted for his subscribers on the evening of June 23. And this one is from Jim's earlier Market Insight:
"Even though I'm a technical analyst, I won't argue that at times news events move the markets. My question is this. How could we ever really know when a market-moving event might occur? Taken a step further, how can we know which event traders are focused on? Is it employment numbers? Production numbers? The focus seems to shift from one set of numbers to the next.
"In the end, instead of forecasting the market, the analyst is forecasting which report the market deems the most important, and then whether the report will meet the consensus or not. What we need to focus on is the underlying trend."
Where will the EUR/USD go after the Fed's June 25 interest rate decision? Find out what the "underlying trend" is right now, inside EWI's Currency Specialty Service.