Thursday October 28, 2010 - 14:09:56 GMT
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U.S. Dollar Falters as Fed Credibility Called into Question
One day after a Wall Street Journal article said the Federal
Reserve would be less aggressive in the quantitative easing arena than
previously anticipated, a story is circulating that the Fed had sent out a
survey asking primary Treasury dealers of their expectations of the size and
impact of further asset purchases.
On Wednesday, the Greenback found support after the WSJ said
the Fed might only apply a quarter of the $1 trillion in new stimulus money
that traders had been anticipating. This story triggered a short-covering rally
that put the Dollar Index on the brink of changing its trend to up.
This morning, news is breaking that questions the Fedâ€™s
credibility. Traders are questioning whether the Fed has any idea as to how
much, or how, to apply additional quantitative easing into the market.
The Dollar is trading sharply lower across the board,
erasing much of Wednesdayâ€™s gains.
In other news, the Bank of Japan offered nothing new
regarding its monetary policy. Interest rates remain low and its quantitative
easing plan intact.
unemployment benefits fell 21,000 to 434,000. This was the third straight
decline and the lowest level since early July. The report was also better than economist
estimates of 450,000.
The impact on the U.S. Dollar was minimal after the release
of the report, creating volatility, but having very little impact on the
The GBP USD is trading nearly 1% higher. Besides the general
weak Dollar news driving the Pound higher, traders are still pushing the long
side because of the report from earlier in the week citing a stronger GDP.
Traders are adjusting short Sterling positions
in anticipation of the Bank of England refraining from additional quantitative
For several weeks, British Pound bears had been driving the
Cable lower on the thought that fresh government spending cuts and higher taxes
would help push the economy toward another recession. The strength in the GDP
report seems to have taken this thought off the table.
Technically, the British Pound rallied into a resistance
cluster at 1.5926 to 1.5931. This cluster is a combination of a downtrending
Gann angle from 1.6106 and a Fibonacci retracement level at 1.5931. Watch for a
possible technical bounce on the first test of this zone. Taking it out could
trigger an acceleration to the upside.
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