The Dollar Drops After The Release Of The FOMC Minutes

EUR/USD

Well after the release of yesterday’s FOMC minutes, the Dollar took another plunge and the Euro headed back up to around 1.4150. I still have a bearish bias on the pair but I’m still going to wait a little longer. 4hr stochastics have crossed down in overbought territory so we should see the pair move back down to 1.4100, but daily stochastics have crossed back up. I’m torn at the moment and I will hold off until I can see a clearer picture in my crystal ball.

GBP/USD

Unlike the Euro, the technicals on the Cable are giving me a better picture. The pair shot up to around 2.0450 today but I think we’ll see the pair drop back down. A bearish divergence has formed on the 4hr chart and stochastics are trending down nicely. Daily stochastics are merged together but they just left overbought territory so I think its still a good bearish sign. I would look for the Cable to fall to its 50 EMA on the 4hr chart at around 2.0350.

USD/CHF

Well the Swissy did continue to drop to 1800 like I said yesterday, and now it looks like the pair may be ready to head back up. There is a bullish hidden divergence on the 4hr chart and stochastics are trending up nicely. Daily stochastics are also trending up which makes me more confident in my bullish sentiment. Look for the Swissy to move up to its 200 SMA on the 4hr chart at around 1850 some time tomorrow.

USD/JPY

Well the Dollar didn’t fall like I’d hoped it would yesterday, but I think there is still a chance it will drop tomorrow. Daily stochastics are in overbought territory and 4hr stochastics have just crossed down (again). I would look for the pair to dip below the 117.00 mark to its 50 EMA on the 4hr chart at around 116.60.

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:
  • Eurozone ministers surely don’t want the Euro to be this strong….right?
    • As I said yesterday the Eurozone ministers were beginning their meeting to discuss the weak dollar, yen and renminbi… So… Some traders believe that means the ministers want the euro to be weaker… I believe traders that believe this are barking up the wrong tree… The European Central Bank (ECB) loves the strong euro, and I’ve explained why on several occasions in the past, but for those who missed class on those previous 1,000 times I’ve explained it… The strong euro does so much for the ECB’s mantra to provide price stability… A strong euro fights inflation, and increases its allure for foreign investment into the country. There are more reasons like the price of oil being reduced, so, you can see what I’m talking about now…
  • What’s the cause for the Dollar rally?
    • The dollars strength was not caused by the numbers released yesterday; as the ISM manufacturing data declined more than expected and the ISM Prices paid number also came in below expectations. These numbers show a US economy which is slowing and justify calls for additional interest rate cuts by the FOMC. No, the currencies, like Chuck, are taking a much needed breather. As Chuck explained yesterday, the Euro ‘gapped up’ over the weekend and this pullback is simply the markets way of filling in the gaps the currencies missed on the way up.
  • Housing Data will be extra important with the 50 BPS rate cute:
    • Let’s not blow off the housing data… After a 50 BPS rate cut last week, and the dollar’s fall VS the euro, I think the housing data will be very important.
  • The Chinese Yuan and what it could mean for the Dollar’s future:
    • And of course, if the Chinese do finally allow a much faster increase in the value of their currency, their need for holding US dollar reserves will likely shrink (i.e. much of the reserve build comes from the pegging process). And dollar for dollar they can buy more oil with a stronger currency (and every other major raw material they input—including pigs). At minimum, if this plays out, it could be yet another sentiment hit to the dollar.
News events to watch for tomorrow :
  • 10pm ET Tonight – JPY Interest Rate Statement
  • 8:30am ET– US Trade Balance

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