US Dollar Falls As Fed Announces Huge US Debt Buy

Today’s US Dollar Trading

• FOMC announces QE, agrees to buy US Debt
• Majors rally hard past most key resistance
• Volumes likely higher

Overnight Preview

• Look for follow-on selling of USD overnight
• Expect high volatility

Looking Ahead to Thursday

All times Eastern (-4 GMT)

• 8:30am USD Unemployment Claims
• 10:00am USD Philly Fed Manufacturing Index
• 10:00am USD CB Leading Index m/m
• 10:30am USD FOMC Member Tarullo Speaks
• 10:30am USD Natural Gas Storage

Summary

Is everybody happy? The US Fed today announced that they will be buying US Debt in huge amounts starting today and the result was a massive exodus out of the USD. Equities responded positively although more will need to be seen if investors view the progress as net-positive for equities near-term. The Greenback reversed mid-day gains as traders bailed on long USD positions and despite volatility it should be clear that the USD has more to go.

Aggressive traders can hold open shorts in the USD through the end of the week as more longer-term traders have to bite the bullet and liquidate losing longs.

GBP rallied through several layers of resistance after holding a dip into tech support mid-day at 1.3850 area; high prints are still coming but at this writing the printed high was 1.4266 with tech resistance due around 1.4320; although with the speed of the move likely those offers have been pulled.

Same story in EURO I think, high prints at 1.3445 with more highs likely during overnight action. EURO is up in areas not seen since the last rally suggesting that offers likely have been pulled also.

USD/CHF has failed from the highs as expected but low prints at 1.1381 likely will give way to more overnight.

USD/JPY is lagging the break as bulls likely have stepped into the fray and bought the break. Low prints at 95.65 are currently holding but a close under the 96.00 handle would be a significant low as the rate has made new monthly lows on this move. Exporters will likely lean on any rally so aggressive traders can add into the close in my view.

USD/CAD also on the defense with low prints under key support of 1.2520; low prints at 1.2470 with more coming overnight in my view. Aggressive traders can sell more on the close if we can close under 1.2520. In my view, the Fed decision to move to a QE stance has probably converted the market sentiment of “flight to quality” back to “USD trend lower”; it might take time for the market to fully appreciate the depth of the flood of USD coming but the underlying fundamentals support this I think. I would look for any appreciable rallies in USD the next few weeks to attract selling now and an overall downtrend to develop again. Look for further declines overnight but volatility will be high so pick your sell points in the USD carefully. Aggressive traders can add to all open USD shorts on the close today.

GBP/USD Daily

Resistance 3:  1.4420

Resistance 2:  1.4350

Resistance 1:  1.4320

Latest New York: 1.4235

Support 1:  1.3860

Support 2:  1.3780

Support 3:  1.3720

Comments

Rate drops into support around 1.3840/50 triggering close-in stops under 1.3940 area; rallies on Fed news but can’t significantly break 1.4250 yet. Likely that will come overnight. Dip is a head fake now that rate held 1.3980 into the close. Stops still seen above weekly highs around the 1.4250 area. Lows likely remain secure. The volume needs to come up and I think the shorts have yet to bail as a group; that may be starting in earnest now. Traders report stops in-range adding for two-way action. Long-term tech resistance now at 1.5000 area likely to cap near term but stops are building above 1.4400 and the 1.5000 handle is a big psychological number. Two-way action continues suggesting that shorts are aggressively adding and longs are trying to find a bottom.  Next upside target is 1.4400 area, downside is near support at 1.3780

Data due Thursday: All times EASTERN (-4 GMT)

5:30am GBP Public Sector Net Borrowing

5:30am GBP Prelim M4 Money Supply m/m

7:00am GBP CBI Industrial Order Expectations

EUR/USD Daily

Resistance 3:  1.3650

Resistance 2:  1.3580

Resistance 1:  1.3500

Latest New York:  1.3451

Support 1:  1.2850

Support 2:  1.2720

Support 3:  1.2680

Comments

Rate follows GBP in two-way action but holds better on the dip, support now above the 1.2950 area. Upside stops likely cleared in size and if the rate can close above 1.3380 more upside is due. Overhead resistance above 1.3100 area negated so a pullback to there would also be a strong buy. Traders note big names on the buy side on dips overnight; semi-officials buying 1.2900 area the past few days.

Close above key 1.3030 area needed for further upside until then rallies likely to be sold so expect more two-way action. Bulls are still attempting to find a bottom. Technical levels around the 1.3150/80 area now likely to offer support on further weakness so expect two-way action. One way trade today suggests a lot of volume.

Data due Thursday: All times EASTERN (-4 GMT)

5:00am EUR Italian Trade Balance

Disclaimer:

Trading Futures and Options on Futures and Cash Forex transactions involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

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