HOW WILL THE MARKETS RESPOND? FOUR WAYS TO TRADE FED DECISION

Who has been buying in the last couple of weeks? Maybe those that are hopeful the Fed will keep rates artificially low are buying ahead of that awaited announcement? Or are people are buying for no other reason than others are buying? It is really hard to predict the market movements after the Fed announcement. But analyst Jani Ziedins projects four possible outcomes and four possible ways to trade them:

1) Rally after hike

This is a bullish signal as it tells us the market no longer cares about China or rate hikes. Everyone who is worried these things sold weeks ago and when there is no one left to sell a headline, it stops mattering.

2) Selloff after hike

Over the medium-term this is a bullish outcome because the rate-hike discussions and lack of confidence are finally over. While the knee-jerk reaction was to sell the news, a 0.25% jump in short-term interest rates will not have a material impact on the U.S. economy. There will be plenty of value oriented buyers ready to jump in and snap up discount shares from fearful sellers. While it is possible to slide to the lower end of the trading range, even undercutting the 1,860 lows, the Fed hiking rates tells us they believe in this economy and so should we.

3) Rally after no hike

This will mark a temporary relief rally that will fade. Postponing the rate hike by six or twelve weeks will not make much of a difference and isn’t something to be happy about.

Jani says he would be worried over the Fed not hiking rates because it would mean they think they economy and stock market are too vulnerable to handle such a nominal rate increase. If they’re worried, then investors should also be.

4) Selloff after no hike

A collapse following good news will signal to stay clear of this market, says Ziedins. If the central bank doesn’t believe in this market, we could smash through the lows.

The situation is further complex because the cloud of rate hike uncertainty continues indefinitely. The market can handle bad news because it is quantifiable. This uncertainty and indecision is what really drives it crazy.

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YEN HIGHER AS BANK OF JAPAN STANDS PAT

On Thursday the greenback edged lower against the yen after the Bank of Japan decided to stand pat on the monetary policy which spurred demand for the Japanese currency.

In a widely expected move, the Bank of Japan’s nine policy board members voted 8-1 to maintain the policy of buying assets at an annual pace of ¥80 trillion. The BOJ last raised the purchase amount in October.

The yen was boosted by the news with the greenback last seen at ¥119.59, lower 0.52%. That compared with ¥120.23 late Monday in New York.

The U.S. currency was higher against the euro, which was at $1.1300 midday from $1.1315 late Monday.

Takuya Kanda, senior researcher at Gaitame.Com Research Institute, said he did not expect such a reaction. He said he had felt expectations for BOJ easing were mounting from earlier this morning, as indicated by a rise in the benchmark Nikkei Stock Average.

After rising 2.0% in mid-morning, the Nikkei trimmed most of its gains, and was up only 0.2% immediately after the BOJ decision. The index was last up 0.9%.

Elsewhere in the currency market, the Australian dollar was weaker at $0.7107 and ¥85.52 midday from $0.7138 and ¥85.19, respectively.

The Aussie gained earlier in the session as investors viewed the country’s new prime minister as positive. Malcolm Turnbull, a 60-year-old former investment banker, will succeed Tony Abbott.

However, the local currency turned down after the Reserve Bank of Australia issued the minutes of its Sept. 1 policy meeting, at which it maintained a neutral tone on the outlook for interest rates.

The euro was at ¥135.47 from ¥136.08.

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11 CURRENCIES THAT MAY FALL AFTER THE YUAN AND TENGE

On Thursday Kazakhstan has shocked global markets - its national currency was plunge on 23 percent. Kazakhstan abandoned control of tenge rate. Vietnam also devalued the dong, while freely traded currencies (the South African rand and Turkey’s lira) extended losses.

The trigger for the wave of depreciations was China’s decision to weaken the yuan on Aug. 11. That added to the woes of emerging markets already reeling from a looming increase in U.S. interest rates and weakness in oil prices.

There are some currencies that are among those most at risk from this conflux of global developments:

- Saudi Arabia’s riyal. Saudi Arabia has about $672 billion in foreign reserves, but speculators are betting on a break of the currency regime as crude oil tumbled to a seven-year low.

- Turkmenistan’s manat. This nation with close economic ties to Russia devalued its currency by 19 percent in January. Analysts from SEB AB wait for further weakening a 20 percent in the next six months.

- Tajikistan’s somoni. The country has close ties with Kazakhstan and so SEB expects a depreciation of 10 to 20 percent.

- Armenia’s dram. The currency has lost 15 percent in the past year, compared with a 46 percent drop in the ruble. A quarter of the country’s trade is with Russia.

- Kyrgyzstan’s som. The weaker tenge will put pressure the som because of this country’s ties to Kazakhstan.

- Egypt’s pound. Traders are betting the pound will weaken about 22 percent in a year.

- Turkey’s lira. It’s one of the world’s worst-performing currencies since China’s devaluation on Aug. 11. An escalation in political violence and the probability of early elections compound the issues.

- Nigeria’s naira. The currency will fall more than 20 percent against the dollar over the next year, traders think.

- Ghana’s cedi. Ghana is also an oil exporter, but its main problems are mainly fiscal imbalances, rising inflation and increasing debt.

- Zambia’s kwacha. The country is heavily exposed to China as copper accounts for about 70 percent of exports.

- Malaysia’s ringgit. The currency slid to a 17-year low on Thursday and foreign-exchange reserves fell below the $100 billion mark for the first time since 2010.

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HOW TO TRADE NEWS EVENTS: ECONOMIC RELEASES THAT MOVE US DOLLAR

How the market reacts to economic releases is generally determined by two factors:
How important the market considers a particular release to be.
How close to market estimates the number comes in at.
How important the market considers a particular economic release to be, is something that changes over time depending on what is happening from a US Dollar fundamentals standpoint. If there are worries that the economy is going into recession, then the market is going to be extra sensitive to any numbers, such as non farm payrolls and consumer spending, which may provide early warning signs that this is the case.

The most market moving indicators, in order of importance are:

Non Farm Payrolls
FOMC Releases
Retail Sales
ISM Manufacturing
Inflation
Producer Price Index
The Trade Balance
Existing Home Sales
Foreign Purchases of US Treasuries (TIC Data)

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THE LITTLE BOOK OF CURRENCY TRADING BY KATHY LIEN

The Little Book of Currency Trading: How to Make Big Profits in the World of Forex (Little Books. Big Profits)
by Kathy Lien

An accessible guide to trading the fast-moving foreign exchange market

The foreign exchange market, or forex, was once dominated by global banks, hedge funds, and multinational corporations, but that has all changed with Internet technology and the advent of online forex brokers. Now, hundreds of thousands of traders and investors around the world can participate in this profitable field.

Written by forex expert Kathy Lien, The Little Book of Currency Trading will show you how to effectively invest and trade in today's biggest market. Page by page, she describes the multitude of opportunities possible in the forex market, from short-term price swings to long-term trends, and details practical products that can help you achieve success, such as currency-based ETFs.

Explains the forces that drive currencies and provides strategies to profit from them
Reveals how you can use various currencies to reduce risk and take advantage of global trends
Examines financial vehicles that can help you make money without having to monitor the market every day
The Little Book of Currency Trading opens the world of currency trading and investing to anyone interested in entering this dynamic arena.

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Steps to Successful Currency Trading

15. We get serious and start concentrating on learning a 'real' methodology. 

16. We trade our methodology with some success, but realize that something is missing. 

17. We begin to understand the need for having rules to apply our methodology. 

18. We take a sabbatical from trading to develop and research our trading rules. 

19. We start trading again, this time with rules and find some success, but overall we still hesitate when it comes time to execute. We start trading again, this time with rules and find some success, but overall we still hesitate when it comes time to execute. 

20. We add, subtract and modify rules as we see a need to be more proficient with our rules. 

21. We go back into the market and continue to donate. We go back into the market and continue to donate. 

22. We start to take responsibility for our trading results as we understand that our success is in us, not the trade methodology. 

23. We continue to trade and become more proficient with our methodology and our rules. 

24. As we trade we still have a tendency to violate our rules and our results are erratic. 

25. We know we are close. 

26. We go back and research our rules. 

27. We build the confidence in our rules and go back into the market and trade. 

28. Our trading results are getting better, but we are still hesitating in executing our rules. 

29. We now see the importance of following our rules as we see the results of our trades when we don't follow them. 

30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better. 

31. We continue to trade and the market teaches us more and more about ourselves. 

32. We master our methodology and trading rules. 

33. We begin to consistently make money. We begin to consistently make money. 

34. We get a little overconfident and the market humbles us. 

35. We continue to learn our lessons. 

36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size. 

37. We are making more money then we ever dreamed to be possible. 

38. We go on with our lives and accomplish many of the goals we had always dreamed of.

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Steps to Successful Currency Trading

1. We accumulate trading information - buying books, going to seminars and researching. 

2. We begin to trade with our 'new' knowledge. 

3. We consistently 'donate' and then realize we may need more knowledge or information. 

4. We accumulate more information. 

5. We switch the forex we are currently following. 

6. We go back into the market and trade with our 'updated' knowledge. 

7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in. 

8. We start to listen to 'outside news' & other traders. 

9. We go back into the market and continue to donate. 

10. We switch forex again. 

11. We search for more trading information. 

12. We go back into the market and continue to donate. 

13. We get 'overconfident' & market humbles us. 

14. We start to understand that trading success fully is going to take more time and more knowledge then we anticipated.

Many Traders Will Give up at this Point as they Realize Work is Involved

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