Predicting Price Movement In An Unpredictable Market

I decided to look at some very recent examples of price from shortly before and after last’s weeks rate announcement, using both the US Dollar and USDJPY. I want to start with the Dollar because this is what most likely confused traders. Fundamentally, when rates go down this weakens a currency and vice-versa. In this instance, we saw a decent rally in the US Dollar, with the Greenback making new 2-year highs, a little after The Fed announcement. This is fundamentally opposite to what it was expected to do. Were there any clues to the Dollar rally beforehand? Well, let’s see what a chart of the Dollar Index (DXY) shows us.

According to the monthly DXY chart below, we can see a series of Demand zones holding a series of higher highs in an uptrend on the Dollar. This is a very Bullish pattern which has been forming for almost 2 years. Sometimes the trend can be your friend it seems. The way things are moving; we should expect high prices in the USD up to around 100 before any real selling enters the market.

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Another way to participate in the FX market without worrying about the news is to keep things very simple and focus on the major Supply and Demand zones which present themselves to us. A wiser man than me once said that news will drive prices into the zones of imbalance between supply and demand. The market will then respond accordingly. This was clearly the case before and after the rate decision as seen on the USDJPY charts.

In the below chart we can see the pair consolidating before the news in a choppy fashion, as can be expected. Once the news came out the movement followed, but what happened and how did the principles of core strategy work out after The Fed announcement?

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Price had already been trading at an established demand zone (low) and then, as you can see below, following the news price rallied strongly into the above supply zone and respected it for some time.

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