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The Scene

Tuesday, 05 August 2008 07:14

The relationship between the dollar and the euro is getting stormy. Sixteen days ago, a new all time high was printed at 1.6041. Since then the dollar has rallied and headed back to the bottom of the 700+ point channel. In late trading this morning 1.5456 had been hit which is below support seen on June 16^th. This opens the door for a full Retracement of the move to the all time high. That mean that 1.5304 is looking pretty good for Dollar Bulls.

The Rub

With the FOMC meeting today, the risk to open positions is high. There will certainly be those that “called it”. There will those that will need to borrow money for new shirts, and those that waited to see what happened. Regardless of where you are, one thing is for certain. Today’s announcement and accompanying notes will make a difference.

Late summer always seems to be kind of dull in the currency market, but it’s been a few years since the Fed has been in this position. The EZ economy is deteriorating. Germany’s growth is slowing: estimates say by enough to put a drag on the entire EZ.

The expectations for the FOMC hold today could be enough cause a selloff of the dollar temporarily. It is the statement that will make the difference. If they lessen the hard line stand against inflation, and moderate their speech to a more even stand between inflation and growth, it would signal that the rate hikes already priced in are in jeopardy. This would lead to a dollar selloff.

The Wrap

Price action after the release could be volatile. The moves in the market Overnight are all those traders positioning themselves on the sidelines to wait out the release. If you’re in the market and you don’t have the capital to weather the storm it’s time to take what you have. It’s better to live to fight another day than be on the hunt for your next meal.