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Posts Tagged ‘dollar’

Fed BunnyIt has been a week now since the Bear Stearns collapse and the Federal Reserve decision to bail them out and lower rates by 75 basis points. Now what??? We see that Oil is starting to head back up and that the rally that we had in the markets were short and sweet. The dollar seems to be getting crushed again and may end up retesting the highs of 1.5900 again. I would like to know your thoughts on the Fed matters. Please fill out the poll so we can get your opinion on what the Fed is doing. Who knows, maybe the Fed will listen this time.

~ G

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293homealone121107.jpgWell, maybe while you were getting ready for bed. The Federal Reserve Bank decided to make an emergency move this evening and cut the bank lending rate to 3.25 percent from the 3.50 percent it was at earlier. This move made by the Fed was meant to “try” and create some stability in the financial markets. Also, at the same time, Bear Stearns (BSC) is being bought out by JP Morgan (JPM) at a steal of a price. This last minute buyout and the move by the Fed (who also approved this buy out by guaranteeing the deal with $30 billion) had an immediate effect on the overseas market and crushed the dollar. The EUR/USD hit a high of 1.5905 and the YEN hit 12 year low against the dollar at 95.74. Gold also was trading (at time of posting) around 1,026 an ounce. (I guess there goes the gold teeth I was considering!)

One way to help you against the falling value of your dollar is to hedge against it with the other currencies like going long the Euro or even long the Yen. Any trading against the dollar seems to be the most logical move. When asked what should be done about the financial crisis in the US, Federal Reserve chairman Ben Bernanke said “I don’t know!” No wonder the dollar is crashing and the basic carry trade is dead.

Well, hedge your bet for now or wait and see if the fed moves some more on Tuesday with another cut of 75 basis point. Bernankes strategy seems to be trying to keep the economy supported and worry about inflation later. We may see on the EUR/USD 1.6000 before Tuesday if the market sees even more weakness. Also, the USD/JPY may see an even lower level below 95.00 as weakness in the dollar continues. Tomorrow is a new day.

~ G

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The Federal Reserve moved today to add liquidity to the markets by announcing a series of actions with other central banks to help improve liquidity and lending for the markets. The Fed are taking this coordinated action without cutting interest rates due in part of rising inflation. US markets showed instant gratification in pre-market trading. and the Dollar rose in strength. The EUR/USD reversed an earlier move 150 pip run up right after the announcement. The USD/JPY ran up 120 pips after the announcements. With all this good news, the bulls may be back for the dollar.

This coordinated effort with the other central banks is being excepted very well with the ECB because it falls in line with what they are trying to achieve. Time will tell if it is a good move for the US markets and other markets around the world.

~G

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The euro got its bounce

bull24.jpg By the way the euro did get it bounce versus the buck. That means it’s time to buy the EUR/USD if all three of these conditions are met:

1. You consider the pair to be uptrending according to however you’ve decided to define the trend. That could be higher highs/lows, price is above a moving average, a moving average is going up, etc. Pick one and let it be your gauge.

 

eurusd.jpg 2. You got buy signals according to your method. For example, if you are using the Investools workshop study set under Studies, one way of doing this is if the pair is close to getting a green arrow on the MACD and the Stochastics has crooked up.

3. Your posture precludes it. No, I don’t mean you’re slouching in your chair and you can’t reach the mouse! This means you wouldn’t buy the pair if you have a bias against the euro right now for some reason, or are bullish the dollar.

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g7.gif

The Group of Seven (G7) nations – France, Germany, Italy, Canada, Japan, United Kingdom, United States of America – met this weekend. The finance ministers of these countries meet a few times a year to discuss their own, and the global, economy.

Sometimes this is a bigger event than other times. For example, many months ago when the carry trade was out of control the G7 meeting was watched with baited breath, because if the G7 focused on the carry trade it could spoil everyone’s fun (if they hint at intervening and messing with the currencies involved in the carry trade, then many traders would exit these trades causing prices to fall).

Not much happened Saturday. But this is interesting from a “big picture” fundamentals perspective. The nuts and bolts:

 

  • About the U.S.: In the United States, output and employment growth have slowed considerably and risks have become more skewed to the downside, but long-term fundamentals remain sound and we expect growth to continue in 2008. We note that downside risks still persist, which include further deterioration of the U.S. residential housing markets; tighter credit conditions from prolonged difficulties in the financial markets; high oil and commodity prices; and heightened inflation expectations in some countries.
  • Outside the meeting, the ECB said that lowering rates is not on the agenda – good for the euro.
  • Outside the meeting, the BoC said that lowering rates is on the agenda – bad for the loonie.
  • Downside to the global economy is continuing to “slow somewhat in the short-term” – bad for most currencies except the yen and franc.
  •  

Their statement is here. Takes about 5 minutes to read, if you’re into economics. Keeping up on things like this can help you have a “posture” regarding a currency beyond what the charts show, and give you a bit of an edge. Just keep reading things like this and it gradually sinks in …

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We’ve seen these type of stories before, but here is another from Reuters (click link to read the whole thing):

“Euros Accepted” signs pop up in

New York City

Wed Feb 6, 12:11 PM ET

NEW YORK (Reuters) – In the latest example that the U.S. dollar just ain’t what it used to be, some shops in New York City have begun accepting euros and other foreign currency as payment for merchandise.

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dow.jpg Stocks got a HUGE “denied” today as they failed to overcome former support/now resistance (was the old head and shoulders neckline) and came down forcibly from it. See the green oval on the lefthand chart.

 

 

eurusd-triangle.jpg This is a classic “retest”, having broken out from a technical level. What does it mean for the pairs? In my book it’s a big signal to get frisky again with the yen and franc, and back to be careful/be bearish with the more aggressive currencies such as the euro. Look at how the EUR/USD has come down hard from the resistance we’ve been watching.

This is also a good example of how intermarket analysis can help in currency trading. Disclaimer: if you are starting out, don’t think you have to know all this and do it! You can do fine without. But I’ve found it helpful to me as I’ve adavnced over the years.

dowvolume.jpg Stocks have the bonus of having volume attached to their prices. Rising volume supports price movement, falling volume weakens it. We can put volume on DIA (mirrors the dow, and has volume on it) and see a picture of the bears being strong and the bulls being weak (see chart on left). As we see this unfolding, it helps us feel more bearish and bullish of certain pairs because stocks continue to lead currencies in a lot of ways.

Bottom line: as stocks continue downward, so will most pairs, and the yen and franc will strengthen!

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