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Contraction in Economy Slowing Creates Bullishness for U.S. Dollar

Currencies / US Dollar Jun 25, 2009 - 05:15 PM GMT

By: BrewerFX

Currencies The Fed ended much of the uncertainty in the Forex markets today when it announced that its key lending rate would stay between 0 - .25%, and there would be no additional expansion of its balance sheet through the purchases of government assets and mortgages.


Although it did not set a hard calendar date for a hike in interest rates, refraining from additional purchases of assets sent a signal to the markets that it would allow yields to rise.  This scenario created the bullishness in the Dollar after the FOMC meeting.

Traders were expressing their desire for an improvement in the interest rate differential which countered any buying from traders seeking more risky assets.

The Fed also commented that the contraction in the economy was slowing.  This provided additional support.  Gains may have been limited as the Fed reported that inflation was expected to remain low.

The EUR USD failed in its attempt to break out over 1.4177.  This move would have turned the main trend to up.  Instead, the daily closing price reversal top indicates that the selling is greater than the buying over 1.4100. 

If downside momentum can build, then look for this market to attack the last main bottom at 1.3748 over the near term, on its way to the first major objective at 1.3610.

The current lower-top, lower-bottom formation is still the best indication that the EUR USD wants to move lower. 

Down side pressure may also build because some traders feel that the European Central Bank would rather not see prices above 1.4100.  At this level, some trades feel that the high price will have a negative impact on Euro Zone exports.

Continue to look for downside pressure as long as 1.4177 holds as resistance.  This scenario will not last long, however, if this currency pair fails to break through the last main bottom at 1.3748.

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DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from B.I.G. Forex, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.


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