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USD Graphic Rewind; Dollar Index Slides As Fed. Confirms QE Plans
Written by article default Wednesday, 13 October 2010 08:19
Despite starting the day with smart gains against most of its major trading partners the dollar ultimately closed lower as the Fed confirmed they were poised for further quantative easing action. Some speculation had crept into the market over the past week that the Fed was in fact undecided over further QE following hawkish comments by some Fed members. However, with the solid confirmation yesterday at the release of the FOMC minutes traders sold the dollar in anticipation of the market being flooded with dollars.
Following yesterday’s sharp reversal to close lower we feel that that the dollar stands now at a cross-roads. Either, the dollar will carve out a bottom and correct higher as the euro stalls out ahead of the 1.40 level and moves lower. Or, this is simply a period of consolidation in both the euro and the dollar, which have moved sharply in opposite directions over the past month, ahead of further dollar losses which will see the index likely test 2009 lows below 75.00. It is tricky to say at this juncture what will play out and when and we would suggest players stand aside until this becomes clearer. However, we continue to favour the former (a dollar correction) for two reasons. Firstly, it looks like the market has fully priced in further easing by the Fed, and secondly technical readings are severely stretched and indicate a correction is on the horizon.
Looking ahead, there isn’t much to direct trade on the calendar today, the highlight in Europe comes in the form of UK unemployment data with a quiet calendar in the US session. Over-night we saw Chinese trade data come in weaker but has so far not materially factored into price-action.
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