U.S. Dollar Falters as Fed Credibility Called into Question

One day after a Wall Street Journal article said the FederalReserve would be less aggressive in the quantitative easing arena thanpreviously anticipated, a story is circulating that the Fed had sent out asurvey asking primary Treasury dealers of their expectations of the size andimpact of further asset purchases.

One day after a Wall Street Journal article said the FederalReserve would be less aggressive in the quantitative easing arena thanpreviously anticipated, a story is circulating that the Fed had sent out asurvey asking primary Treasury dealers of their expectations of the size andimpact of further asset purchases.

On Wednesday, the Greenback found support after the WSJ saidthe Fed might only apply a quarter of the $1 trillion in new stimulus moneythat traders had been anticipating. This story triggered a short-covering rallythat put the Dollar Index on the brink of changing its trend to up.

This morning, news is breaking that questions the Fed’scredibility. Traders are questioning whether the Fed has any idea as to howmuch, or how, to apply additional quantitative easing into the market.

The Dollar is trading sharply lower across the board,erasing much of Wednesday’s gains.

In other news, the Bank of Japan offered nothing newregarding its monetary policy. Interest rates remain low and its quantitativeeasing plan intact.

Weekly U.S.unemployment benefits fell 21,000 to 434,000. This was the third straightdecline and the lowest level since early July. The report was also better than economistestimates of 450,000.

The impact on the U.S. Dollar was minimal after the releaseof the report, creating volatility, but having very little impact on thedeveloping weakness.

The GBP USD is trading nearly 1% higher. Besides the generalweak Dollar news driving the Pound higher, traders are still pushing the longside because of the report from earlier in the week citing a stronger GDP.Traders are adjusting short Sterling positionsin anticipation of the Bank of England refraining from additional quantitativeeasing.

For several weeks, British Pound bears had been driving theCable lower on the thought that fresh government spending cuts and higher taxeswould help push the economy toward another recession. The strength in the GDPreport seems to have taken this thought off the table.

Technically, the British Pound rallied into a resistancecluster at 1.5926 to 1.5931. This cluster is a combination of a downtrendingGann angle from 1.6106 and a Fibonacci retracement level at 1.5931. Watch for apossible technical bounce on the first test of this zone. Taking it out couldtrigger an acceleration to the upside.

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

Disclainer: