Forex and the FOMC

Forex trading around the news is not for the faint of heart. Nor is it for the inexperienced or undisciplined. We have recently seen several big news items that have crossed the wires, that have produced muted responses. this is interesting considering where we currently stand in the make-up of the total retail trader population. More retail traders have closed their accounts in the last 60 days than at any time on record. But just as fast as they have folded up their tents and gone home, new traders have filled their void. These new traders have not seen a volatile news report. Although the recent round of profit taking...250 pips in the sterling in just over 24 hours...is pretty breathtaking.

But perhaps lulled into a false sense of security that there are a lot of "chicken-littles" when it come to news trading, they may be ready to pounce on the announcement today. The recovery, as I have been saying for some time, is not what it has been cracked up to be. Where there are no jobs, there is no recovery. Repeat that to yourself every day, and it will keep your head clear about where the US is headed as an economy. And please remember, Government created jobs DO NOT COUNT. This is why the stimulus failed the first time. Government cannot create jobs. It cannot create wealth. No one can spend their way to riches. Any plan that calls for more spending as the solution is a crock. The more you spend, the deeper in debt you go. You do not get richer. Stimulus, if it is hinted at today or employed in the not too distant future will only hurt the economy in the longer term. Like cocaine to the addict, or alcohol to the drunkard, it will ease the pain for a while, but it only reinforces the fatal spiral. We know this to be a fact.

However, what we don't know is what the market reaction will be. Typically, I would look for the use of stimulus to cause a sell off on that currency. Stimulus means more debt, and it also means a longer period of time until interest rates are raised. this is the death knell for a currency. Therefore, as such, more stimulus should lead to a sell-off for the USD. But these are not normal times. The market may very well respond with a USD rally. Why? Because stimulus gives the "people" money to spend (supposedly). But I'll ask all my American readers, did you get more money to spend form the record breaking amounts of stimulus in 2008? I sure as heck didn't. I wouldn't look for this time to be any different.

But it is the perception that will move the market. if traders feel that the US is finally doing enough to turn the corner, they will begin buying the dollar. And as it has a nice jump start on the move and bounce off of April lows in the USD index, that might really fit the bill. For me, the better part of wisdom says stand aside today.

Happy Trading!

Bill
www.thefxtradingmasters.com