After The Fed Cut

FXSUPREME

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The Fed cut the benchmark fed funds rate to 4.75 percent after keeping it unchanged for more than a year. It has not lowered this rate since 2003. It also reduced the discount rate - what it charges banks borrowing from its discount window - by half a percentage point to 5.25 percent. On Aug. 17, the central bank lowered the discount rate by a half-point to help keep cash moving in the U.S. banking system.

The central bank's decision and the wording of its accompanying economic assessment gratified a market that plunged during August amid fears that credit market tightness, spawned by a continuum of mortgage defaults and delinquencies, would send the economy toward recession.

The market's initial response is 'Thank you, Ben’. "But we also know that when people stop and look at this, people might say, 'Could this house of cards be shaky, more than even we thought it was?'"

The dollar tumbled to a new all-time low against the euro after the rate cut, because lower rates make a currency a less attractive investment. Meanwhile, crude-oil futures catapulted further into record terrain, rising 94 cents to $81.51 a barrel, and gold prices rallied to a multi-decade high.

Meanwhile, the Labor Department's August producer price index was also more favorable than the market predicted. Wholesale prices fell 1.4 percent last month, the biggest decline in 10 months and led by a 6.6 percent drop in energy costs. Core inflation, which eliminates food and energy prices, rose by a mild 0.2 percent, as expected.

Short Term Direction: Up through Thursday

Medium Term Direction: Up to the week of October 1

Target: 1.4070

EUR/USD made a strong rally on Tuesday that signals the downward correction expected into the end of month ended early

The cycles are now positive during the next several weeks, but it is too soon to be certain just how aggressive the move will prove

The shorter cycles call for a minor peak during late trading on Thursday and the most likely place for a peak is 1.4070

Following this high the euro should pull back for a day or two before the uptrend resumes

This strength should last into the end of the week of October 1 and it should rally to our tentative target of 1.4200 and probably further

The support at 1.3905 should hold, even in the volatile trading conditions

Only a break of 1.3805 turns the outlook negative



Strategy: Buy euros on even minor weakness

NY Close Support1 Support2 Resistance1 Resistance2

1.3972 1.3945 1.3905 1.4025 1.4070



AUD-USD @ 0.8523/27...Bullish, holding Long
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R: 0.8532 / 0.8572 / 0.8592
S: 0.8483 / 0.8462 / 0.8425
The Australian Dollar has been one of the biggest gainers from the FED rate yesterday. This is probably because Japanese investments are more likely to flow towards Australia, rather than the USA now.

Technically, there is Support now in the 0.8480-60 region. And then again, near 0.8425. While these Supports hold (they should), the Aussie has potential to rise towards 0.8650-8700. Before that, there may be some Resistance near 0.8592, the 76.4% retracement of the fall from 0.8876 (25-Jul) to 0.7674 (17-Aug).

Intra-day, also, the market looks bullish, with chances of moving up to 0.8570-75.

Our Long at 0.8495 was exited at cost at 0.8495. We are holding a second Long, as below:

Holding:
AUD 15K Long at 0.8520, SL 0.8414, TP 0.8640. We shall be looking to add to position.

USD-JPY @ 115.86/90...Could underperform
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R: 116.12 / 116.33-47 / 116.72
S: 115.60 / 115.30-15 / 114.70
Dollar-Yen rose to 116.39 yesterday. It is starting to look bullish now, with potential to slowly rise towards 116.72. Supports available as above.



That said, USD-JPY is likely to underperform its cousins such as EUR-JPY and AUD-JPY, which are likely to rise more, after the FED rate cut yesterday. The Bank of Japan, on its part, has kept rates unchanged today in an 8-1 decision. This keeps chances of a rate hike alive, sometime later during the year.


EUR-JPY @ 161.96/162.00...Buy dip
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R: 162.24 / 162.50-59 / 162.77
S: 161.40 / 160.90 / 160.58
The Cross has broken and closed above the 200-day MA (currently 160.06) yesterday. It is also trading above 161.52, the 61.8% retracement level of the fall from 169.12 (23-Jul) to 149.25 (17-Aug). As such, the long-term outlook is bullish, targeting 164.70-165.70.

For this week, we could see some Resistance at 162.77, on the Weekly chart. A dip towards 161.65-55, if seen today should be used to buy.

Our Long at 161.44 yssterday saw profit at 162.00

Limit Buy Order:
Buy EUR 20K at 161.65, SL 160.65, TP 164.60

Happy Trading!!!
 
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