Fed Decision Crushes U.S. Dollar

The U.S. Dollar fell sharply lower versus the Euro and theJapanese Yen Tuesday afternoon after the Federal Open Market Committee hintedthat it stood ready to provide stimuli for the U.S. economy. The suggestion ofadditional quantitative easing conjured up images of the Fed firing up theTreasury printing press, thereby weakening the Dollar.

The U.S. Dollar fell sharply lower versus the Euro and theJapanese Yen Tuesday afternoon after the Federal Open Market Committee hintedthat it stood ready to provide stimuli for the U.S. economy. The suggestion ofadditional quantitative easing conjured up images of the Fed firing up theTreasury printing press, thereby weakening the Dollar.

The FOMC statement suggested the Federal Reserve may bepreparing to provide more stimuli, most likely at its next meeting in November.This news confirmed what investors were looking for prior to the decision. TheFed cited the main reasons for considering additional stimulus was risingunemployment and falling prices. Today’s Fed statement brought up concernsabout deflation for the first time since its loose monetary policy began.

In addition to the soft nature of the Fed’s monetary policydecision, favorable debt auctions in Spainand Irelandlit the initial fire this morning in the EUR USD.

The stronger Euro reflected the growing sentiment that theEuro Zone economy is recovering faster than the U.S. economy. The hint at an increasein QE by the Fed is a strong indication that the FOMC believes the same.Furthermore, more QE will keep pressure on U.S.interest rates, while a faster recovery in Europewill bring that economy closer to an interest rate hike. Investors will look to invest in the higheryielding currency.

Technically, after hovering near last week’s high at 1.3159earlier in the session, the EUR USD moved sharply higher after the Fed hintedat additional easing. The strong close has put the Euro in a position to testthe early August high at 1.3334. An uptrending Gann angle at 1.3244 isproviding guidance at this time.

The Fed’s hinting at further quantitative easing helpeddrive the USD JPY lower. Today’s lower-low formation formed a new swing top at85.93 and gave the first indication since last week’s intervention that themarket has most likely absorbed the $17 billion of Yen selling pressure. A newmain range has been formed between 82.88 and 85.93. This makes the retracementzone at 84.40 to 84.04 the next likely downside target.

Many traders were surprised the 85.00 level was breached soeasily this afternoon. Some believedthat this would be the ideal price for the Bank of Japan to defend. Oncetraders saw that there was no sign of central bank activity, the Dollar/Yenbecame easier to sell.

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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