U.S. Dollar Weakening as Traders Shrug Off Discount Rate Hike

The U.S. Dollar is weakening at the mid-session after an early morning top as traders are shrugging off the Fed’s discount rate hike.

The U.S. Dollar is weakening at the mid-session after an early morning top as traders are shrugging off the Fed’s discount rate hike. Traders are treating the action by the Fed as something the central bank had to do to encourage banks to borrow from the private sector. Last night, traders reacted as if the Fed had begun to tighten its monetary policy. This is not the case as the Fed has emphasized that interest rates will not rise for an “extended period”.

Stock traders caught on quickly to what the Fed meant with its discount rate hike. The strong rally in the equity markets is driving up demand for higher risk assets. The Dollar began its topping process early in the trading session just after the EUR USD bottomed. The Greenback started to break as profit-takers took over while the Euro turned positive.

The EUR USD is now in a position to post a daily closing price reversal bottom. This potentially bullish pattern could trigger the start of a near-term short-covering rally.

The GBP USD started the day sharply lower after a worse than expected U.K. retail sales report. This report was another signal that the U.K. economy was falling further behind the U.S. economy. A mid-session short-covering rally began after the Dollar index topped and the Pound became oversold.

The rally in the Euro is helping to pressure the USD CHF. This is because it is diminishing the chances of another round of intervention by the Swiss National Bank.

The hike in the discount rate by the Fed has caused Japan to lose its short-term interest rate advantage against the U.S. Dollar. This has turned the Japanese Yen into the main carry trade currency once again.

The weakening of the Dollar has triggered a turnaround in the crude oil and gold markets. The subsequent rally in these two markets is helping to pressure the USD CAD at the mid-session.

Strong demand for equities is helping to boost interest in higher yielding assets. This helped the AUD USD and NZD USD bottom early in the trading session.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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