USD Interest Rate Hike

[fxscalper90]

Originally Posted by DrForex

olimits7

The question is why did you think "USD will weaken on rate increase"?

There is no simple answer to the question, how intra day, intra week currency prices react to these types of "fundamental" events.

To understand this you have to be able to read the complete story line and pick up on the short term "sentiment". Reading the storyline is like watching a soapie. You don't have to watch everything but you can't afford to miss certain episodes.

Some of my subscribers actually thought I made a mistake when I made this call around London opening:

drforex > I think some more downside, today, tomorrow before somewhat of an uptick in currencies before easter weekend, wednesday NY and Thursday
:drforex > that if fed make 25 points and leave 'measured' in place or slightly adjust it

The point is that to do complete analysis, what i call relational analysis (or realtime analysis) you must consistently relate price (and price movement), time (elapse of) and events (discounting of). If you do this, well you are much less surprised by "funny" market moves.

Then, coming to think of it, I actually mainly based it on :

:drforex > OK, based on very rudimentary application of fractal geometrics, today is likely to be also pretty volatile
:drforex > i.e big moves, in this case probably further south ...

Good call, Doc. I especially like the "likely to be also pretty volatile..." remark.

fxs

[fxscalper90]

Originally Posted by Nonpiker

Inflationary pressures also could lead to US treasury liquidation due to the fact that holders feel the Fed is behind the curve. This is anything but dollar positive. The initial move was to buy dollars but we will really need to see how the debt holders react. Just remember the first reaction is not always the right one...

This is definitely true.

As was seen in the EUR/USD 4-month 1600-point super spike last year. It then did a whoops-retracement of 900 points, then a screwed-up-again-climb back numerous hundred points, now this latest we're-big-money-and-just-don't-effin-get-it-backpedal circus drop of 5 cents.

All is fun in war and love, though, right, guys?

The Scalper

[GoldChild]

Just remember, interest rates are (usually) put up when inflation rises. Price rises can be caused by increased demand from economic activity and higher interest rates help slow this down but inflation can also be the genuine weakening of the currency. A rise in interest rates may not always compensate for a weaker currency and it might still weaken further. When this happens in the US it will be a sign of genuine inflation and the dollar will really be in trouble.

[fxscalper90]

Originally Posted by GoldChild

Just remember, interest rates are (usually) put up when inflation rises. Price rises can be caused by increased demand from economic activity and higher interest rates help slow this down but inflation can also be the genuine weakening of the currency. A rise in interest rates may not always compensate for a weaker currency and it might still weaken further. When this happens in the US it will be a sign of genuine inflation and the dollar will really be in trouble.

Hm... interesting concept, GC.

Is this going to happen?

fs

[jasperforex]

The Fed underlined it's fear of inflation creeping in and that's what caused the reaction on the day. But in the days leading up to the rate decisions, carry trades were already in the process of being unwound and the dollar was riding on the crest of a wave, so really you can say the market took the path of least resistance.

[fxscalper90]

Originally Posted by jasperforex

The Fed underlined it's fear of inflation creeping in and that's what caused the reaction on the day. But in the days leading up to the rate decisions, carry trades were already in the process of being unwound and the dollar was riding on the crest of a wave, so really you can say the market took the path of least resistance.

Hm... so is it possible to know where EUR/USD is headed in, like, the next month? Week? Two months?

The FX

[happy99]

I read a newspaper article that say that when Fed raises rates trouble usually follows.

[fxscalper90]

Originally Posted by happy99

I read a newspaper article that say that when Fed raises rates trouble usually follows.

*makes note to build that into my forex trading system*