FOMC Gives Direction
Leading into today’s FOMC decision, the dollar has been sold hard against every currency or commodity listed for the last few weeks, partly because of a rally in equities, but also because the Fed and the treasury have demonstrated that recovery is their top priority even if it means disregarding the dollars’ value. So the most important factor became the Fed’s perspective on recovery and whether they believe increased easing is necessary.
Hours before the Fed decision, all markets began gaining slowly on the dollar as they anticipated a sell-off and new highs. The knee jerk reaction was to continue to sell it shortly after the release. But then the market realized quickly that the release was optimistic and did not say that rates would remain low as previous releases had stated. Three and six month Fed fund futures began to price in rate hikes, the dollar gained on all currencies, and equities fell into the red for the day.
We believe that the larger dollar bearish trend is still intact and we look forward to a possible correction here as an opportunity to buy EUR/USD and AUD/USD on the cheap. The economy still has gaping craters in unemployment and bank stability which will stifle lending for some time to come. The idea that the economy is improving enough to allow the Fed to raise rates soon is wishful thinking and we will be looking for confirmation of this on our charts.
Some areas to keep an eye on in the Euro:
1.4700, 1.4670, 1.4647 for a minor correction
1.4570, 1.4516 for a major correction
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