Dollar Drops As Fed Signals Rate Cuts

EUR/USD

Wowee! The Euro gained massive momentum after Big Ben made some indications that the Fed will cut rates to help the US economy. At the same time, the German Business confidence unexpectedly increased yesterday which added more fuel to the Euro’s hot streak. Everything I said yesterday pretty much went down the dirt as the Euro is now at record high’s since its inception. Both 4hr and daily stochastics are in overbought territory which technically means we should see some retracement soon, but with a strong fundamental move like we’re seeing now, it’s very hard to play the technicals right now. If you do decide to trade this pair, I would be very careful!

GBP/USD

Well the Cable did end up moving up like I said it would yesterday. In fact it moved much much higher than I thought as it peaked out at 9950 before settling back down around 9900. Technically speaking this pair looks ready to drop. On the 4hr chart stochastics are trending down in overbought territory, and there is also a bearish divergence. The only thing holding me back is that this huge move is more fundamentally driven which makes technicals less reliable right now. Daily stochastics are also still trending up in overbought territory which means there may be a little more upside momentum. If I see some strong momentum to the downside, then I will go short and look to take profit at the 9800 level.

USD/CHF

The Dollar ended up falling like a rock yesterday and went wayy past my target at 1.0800; falling all the way down to around 1.0650. The Dollar looks like it could rebound as daily stochastics are hooking back up in oversold territory. However, 4hr stochastics are still trending down even though it is also in oversold territory. Currently the pair is trading around 1.0667 and I think we may see it drop back down to around 1.0650. From there however, I think we should see the pair make a nice move up to around 1.0700.

USD/JPY

The Dollar also dropped against the Yen like I thought it would yesterday and it dropped all the way down to 106.00 before bouncing back up to around 106.50. The charts are giving mixed signals again on the pair as 4hr stochastics are trending up while daily stochastics are trending down. In the short term, we may see the Dollar rise back up to around 107.00 but with daily stochastics trending down, we could see the pair make another run down to 106.00 or lower by the end of the week.

 

I’m not really big into fundamentals but I feel that they are important to discuss. In this section I will be posting fundamental tidbits that I find interesting from various sources. If you find an article that you think would benefit everyone, please email me (Big Pippin) with your username, the article, and a link to where members can read the entire article.

Now onto the Fundamentals:
  • Dollar Falls to Record Low Against Euro
    • The U.S. currency has slid 4 percent against the euro in the past three weeks as the housing slump deepened and consumer confidence tumbled, leading traders to abandon bets the dollar and the economy would rebound as the Fed cut rates.
  • Bernanke Signaling Rate Cut?

    • The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Bernanke said, hewing closely to assurances he offered earlier this month.
    • ncoming barometers continue to "suggest sluggish economic activity in the near term," Bernanke told lawmakers. At the same time, he added, the Fed must keep a close eye on inflation given the recent run-up in energy and other prices paid by consumers and businesses.
      For now though, the No. 1 battle is shoring up the economy.

  • New Home Sales Slip Near A 13 Year Low
    • New home sales slipped to a nearly 13-year low in January, according to a key government report on the battered housing market.
    • The reading was below the consensus forecast of 600,000, according to economists surveyed by Briefing.com, and was the lowest reading since the 559,000 rate reported in February 1995.
  • Euro Interest Rates about to Rise?

    • And don’t look now, but Eurozone inflation is rising… Of course I told you it would, given oil prices, and that the European Central Bank (ECB) would have to drag its feet to cut interest rates… (I also tried to say that on CNBC, right?) Anyway, inflation for the 13-nations that make up the euro, rose 3.1% in November… Whoa Nellie! That’s way too high, given the ECB’s ceiling of 2%!
    • The one thing to think about here is that should the ECB decide to raise rates, and the Fed decides to keep cutting rates (recall the discussion about the possibility of 50 BPS this month from the Fed) The euro would be enjoying a positive rate differential… You think the euro was popular as an offset currency to the dollar before? Wait till that happens (if it does of course!)
News events to watch for tomorrow :
  • 8:30am EDT- US Preliminary GDP Annualized

For a list of all of tomorrow’s news events, check out our Forex Calendar