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March 14, 2022

Rate Hikes Incoming! How To Trade USD

Frank Cabibi

On March 16, the Fed will announce the new funds rate. As of now, the dollar is shaky as investors try to form a directional bias. The DXY is down -0.08% at the time of writing this. Wednesday's outcome will be imperative that investors, so here is how to trade USD before the news.

Subtle Hikes

how to trade USD

The current rate is under 25 basis points, and the forecast for Wednesday's decision is under 50bp. It appears that the Fed will act with caution when raising the funds rate to decrease the likelihood of a recession. This first rate hike, I believe, will shake the stock market in some way.

However, the first hike is still investor-friendly for equities in my eyes as the higher rate will almost do nothing fundamentally to bank/bond yields. But, the principle of raising rates could still be enough to cause a USD surge. Either way, this expected hike will be beneficial to the USD, the question is how much of an impact it will have.

In short, this is a good time to start looking at USD pairs to trade ahead of the news.

How To Trade USD

EUR/USD

how to trade USD

I have a general short bias on the euro right now as it doesn't really compare to the US, England or New Zealand when it comes to monetary policy right now. If price ends up touching that lowest resistance level between 1.11 and 1.12, that could be a decent short setup on the pair. It will also be important to watch price action on the 1D and 4H timeframes in the case that price doesn't come up to that point.

USD/CAD

how to trade USD

As oil prices come generously off the highs, the loonie may start to look less strong this week. This pair is steadily rising higher but keeps getting capped at the 1.29300s. A third test at this double top could be the catalyst for a break in resistance, and something as impactful as a rate hike could be that catalyst.

USD/CHF

how to trade USD

This pair is about to bust out of resistance on the 1D chart. I think monetary policy has a huge impact for USDCHF and that a break in this level could take price to the highs around the 0.94700s. If not, lots of support lies below including the 0.92900s.

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