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August 08, 2009

EUR USD Posts Weekly Reversal Top
by Brewer Futures Group

August 7, 2009

The U.S. Dollar posted a strong reversal to the upside today following the release of a better than expected U.S. Non-Farm Payrolls Number. The report which showed a loss of jobs less than economists had estimated sent a signal to traders that the U.S. may be the first major economy to recover from the recession.

Traders most likely bought the Dollar in anticipation of the Fed announcing the end to its easy money policy and perhaps introducing an exit strategy which includes a rate hike. The Fed holds a two day meeting next week with an announcement due on August 12th.

Traders seemed to be buying the Dollar in anticipation of the U.S. gaining an interest rate advantage over currency markets which still have rates at historically low levels.

The GBP USD posted a closing price reversal top on a weekly basis which could be setting up the start of a minimum 2 to 3-week correction of the current uptrend. Earlier in the week, the Bank of England started the break with an announcement to add more funds to its quantitative easing program. Today's bullish U.S. unemployment report helped accelerate the move to the downside.

The EUR USD also formed a weekly closing price reversal top. Weakness started on Thursday after the European Central Bank decided to leave rates unchanged. Today's bullish economic news from the U.S. could be signaling the start of rate hikes by the Fed, which would tighten up the interest rate differential between the Dollar and the Euro.

Talk of the Fed possibly hiking rates also helped the USD JPY rally. With the Bank of Japan expected to leave interest rates at 0.1% at next week's meeting, a hike in rates by the U.S. would increase its interest rate advantage over the Japanese currency.

Speculators anticipating a recovery in the U.S. economy and a possible end to the Fed's easy money policy helped boost the USD CAD. Technically this pair formed a weekly reversal bottom which should lead to a minimum 2 to 3-week correction.

Higher yielding currencies such as the NZD USD and AUD USD finished up for the week but lower on Friday. Today's better than expected unemployment report may be signaling a change in U.S. interest rates which would change the interest rate differential between the U.S. and Australia and the U.S and New Zealand. Traders most likely lightened up their positions in anticipation of higher yields in the U.S.

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DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from B.I.G. Forex, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of positions such as "spread" or "straddle" trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

Information provided in this correspondence is intended solely for informational purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

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