Adjusting USDJPY scalps for FOMC weeks

[LondonScalper]

FOMC weeks change USDJPY in a way I didn't fully appreciate until I sorted my trades by week type last winter.

What I found: in the three trading days before an FOMC decision, USDJPY tends to become rangier and less directional in my London hours. Breakouts from the Asian range failed more often. In the two days after, it tends to trend more, often in the direction of the post-decision move.

So I treat an FOMC week as three different markets.

Monday to Wednesday before the decision. I trade USDJPY at about 70% of normal size. I favour fading the edges of the London session's opening range rather than breaking it. My target shrinks from about 8 pips to 5.

Wednesday evening. The decision comes at 19:00 London most of the year. I'm flat on USDJPY from 17:00, and I don't trade the decision or the press conference. I've watched too many reversals during the Q&A.

Thursday and Friday. I go back to normal size and favour continuation. If the pair broke out after the decision, I look for pullbacks in that direction in the London session. I'm more willing to hold for 15 to 20 pips.

Over the last eight FOMC weeks, my USDJPY results in the "before" days are roughly break-even, and in the "after" days clearly positive. It suggests I'd lose very little by not trading the pre-decision days at all, which is something I'm considering. Do you change your USDJPY approach in Fed weeks?

[Shadow Trader]

Splitting the week into three markets matches my log too, but I'd push back a little on Thursday. On my USDJPY trades the first London session after the decision was the worst of the three phases, not the best.

What happens is the Asia session has already digested the press conference, so by 08:00 the obvious move is often six or seven hours old. Pullbacks look clean and then the pair just chops around the post decision level.

My fix was a simple test. If USDJPY has already moved more than its average daily range from the 19:00 price by the London open, I treat Thursday like a pre decision day: smaller size and fades only. Friday then gets the continuation plan.

On skipping the before days entirely, I'd check one thing first. Are the break even results evenly spread, or is it one ugly Tuesday dragging the rest down? If it's one day, a single rule might fix it.

Do you also adjust for the dot plot meetings, or treat all eight the same?

[Shadow Trader]

Something I watch in FOMC weeks is where the movement goes while USDJPY sits still. On the days before the decision, EURJPY and GBPJPY often carry the move that USDJPY refuses to give.

It makes sense if nobody wants to commit to the dollar before the press conference. Flows go through the euro or sterling side instead, and the yen leg just comes along.

I don't trade the crosses much, but in those weeks I keep EURJPY on M5 as a guide. If it's trending and USDJPY is flat, I take that as a sign the dollar is on hold and stay with fades on USDJPY.

The attached illustration shows a made up Tuesday of that kind, with USDJPY stuck in about a 20 pip range through London while EURJPY trends around 60 pips. It's the same pattern behind your 70% size and 5 pip targets, seen from the cross.

img_13041_r2.png (118.09 KiB) Viewed 26 times

For Wednesday I'm flat by 17:00 like you, plus no pending orders at all from 18:00. A stop order parked near the range edge is the easiest way to end up in the decision by accident.

Has anyone measured what a BOJ meeting in the same week does to this? That combination has been the messiest for me.

[Fairman]

In the two days after, it tends to trend more, often in the direction of the post-decision move.

Did any of those eight weeks also have a Bank of Japan meeting? The two are often scheduled within days of each other, and when the BoJ decides on the Thursday or Friday after the Fed, the after days carry a second event for USDJPY. That could make the post-FOMC trend look stronger than the Fed alone explains, or weaker on the weeks the BoJ surprised. With only eight weeks, splitting by that may leave three or four in each group, but it would show whether the pattern is really about the Fed. How many trades sit behind the after result?