Market participants are confused, but you don't have to be..
Dear Friends/Fellow Traders,
If you had open Dollar Short positions in the market yesterday, you would have been in for a nasty surprise if you didn't set your stops tight and had reverse orders in place. The Dollar rallied on the back of expectations that the Federal Reserve will end the tightening cycle and possibly raise interest rates as early as early next year, purely based on some story that the Fed research team is saying that "inflation may be a concern". Interest Rate expectations are overhyped, in my opinion, and market participants are totally forgetting the underlying fundamentals that will dictate the value of the currency in the long term, if not the immediate term. Based on extremely soft US data last week, it doesn't look like this Dollar rally will last very long, and I advise you to not be a victim of the "bandwagon effect" and jump on the bandwagon along with all the other traders; by jumping on you would be violating two very important trading fundamentals: (1) You would be effectively "chasing the trend" (if there even is one), and (2) You would be totally disregarding the economic fundamentals of the country (in this case the US). The FOMC policy statement is due on Wednesday October 25, 2006 at 14:15 Eastern Time, which will sway the market one way or another, but it seems that the market has already decided that the Dollar is going to strengthen. In my opinion, the strong consumer demand as of late is most likely linked to the upcoming Christmas season and not a healthy US Economy. The Fed will NOT raise interest rates anytime soon because doing so will have very undesirable consequences for a slowing US economy. A rate cut is more likely in the works, but there is a risk that the Fed could hold a neutral stance. We shall see...
Whether you are Dollar Long or Dollar Short, keep tight stops and have reversal orders in place in case the Fed surprises the market again with totally unconventional announcements.
By the way, the USD/CAD is an extremely attractive sell at the current price, as it's nearing very significant resistance at 1.1295. Above that there is another resistance at 1.1305, so essentially the USD/CAD would have to break through two resistance levels before it can continue any higher. I would sell at market and place a stop and reverse order at or about 1.1310, above the 1.1305 resistance. The slide in commodities is most likely just a correction and will push up again.
Stay tuned!
To successful trading,
Dickens
If you had open Dollar Short positions in the market yesterday, you would have been in for a nasty surprise if you didn't set your stops tight and had reverse orders in place. The Dollar rallied on the back of expectations that the Federal Reserve will end the tightening cycle and possibly raise interest rates as early as early next year, purely based on some story that the Fed research team is saying that "inflation may be a concern". Interest Rate expectations are overhyped, in my opinion, and market participants are totally forgetting the underlying fundamentals that will dictate the value of the currency in the long term, if not the immediate term. Based on extremely soft US data last week, it doesn't look like this Dollar rally will last very long, and I advise you to not be a victim of the "bandwagon effect" and jump on the bandwagon along with all the other traders; by jumping on you would be violating two very important trading fundamentals: (1) You would be effectively "chasing the trend" (if there even is one), and (2) You would be totally disregarding the economic fundamentals of the country (in this case the US). The FOMC policy statement is due on Wednesday October 25, 2006 at 14:15 Eastern Time, which will sway the market one way or another, but it seems that the market has already decided that the Dollar is going to strengthen. In my opinion, the strong consumer demand as of late is most likely linked to the upcoming Christmas season and not a healthy US Economy. The Fed will NOT raise interest rates anytime soon because doing so will have very undesirable consequences for a slowing US economy. A rate cut is more likely in the works, but there is a risk that the Fed could hold a neutral stance. We shall see...
Whether you are Dollar Long or Dollar Short, keep tight stops and have reversal orders in place in case the Fed surprises the market again with totally unconventional announcements.
By the way, the USD/CAD is an extremely attractive sell at the current price, as it's nearing very significant resistance at 1.1295. Above that there is another resistance at 1.1305, so essentially the USD/CAD would have to break through two resistance levels before it can continue any higher. I would sell at market and place a stop and reverse order at or about 1.1310, above the 1.1305 resistance. The slide in commodities is most likely just a correction and will push up again.
Stay tuned!
To successful trading,
Dickens
posted by ForexDragon at 4:58 PM
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