The Federal Reserve announced a rescue package that would pump as much as $200 billion into bank and investment houses. While not an actual bailout, the move allows them to post risky-loan packages as collateral. This is the Fed's attempt to stem the global credit crisis and slumping housing industry. The action should help stabilize the financial markets; however, it is going to take time to change the downtrend in the Dollar.
Wall Street loved the news and rallied stocks. It is too early to say if this move is a long-term solution to the credit problems, but it is a sign that the Fed is willing to be creative to help the situation. The move also gave those holding long Euros a chance to cash in as this type of news breeds uncertainty, which could damage the uptrend. Traders were looking for any excuse to take profits, and it looks like they received it.
The longer-term solution is still an interest rate cut by the ECB. This is unlikely, however, as their mandate is to fight inflation. Earlier in the day, the Euro made a new high on news that the German economy is expecting a surge in exports due to the U.S. economic stimulus package. Based on this news, it seems that the outlook in the Eurozone is for inflation to stay the same or grow.
No one knows how long it is going to take the Fed's action to affect the economy. Right now is it just a short-term solution to a major problem. If that is the case, then wait for a nice sized pull back in the Euro to set up the next buying opportunity.
EURUSD: The main trend is still up; however, the outside move and reversal down is a topping signal. A follow through break is needed to confirm. The market also broke through a major up trending angle at 1.53970 today. This is also a bearish sign. Based on Tuesday's action, the market may be setting up for a full retracement of the 1.4437 to 1.53870 range. This makes the next major downside target and buying area at 1.4917.
GBPUSD: The GBPUSD reacted negatively to the Fed action on Tuesday. 2.02 is the new minor top based on the one-day selloff. The short-term range is 1.9720 to 2.02199. Look for a pullback to 1.9970 â€“ 1.9960. With the trend up, look for buyers in this support zone. If this area fails, then this is a sign of a more serious top. Holding the support zone could set up another leg higher to 2.0249 to 2.0281.
USDJPY: The USDJPY held last week's low at 101.40 and rallied sharply higher. Although the first resistance angle is at 103.86, expectations are for a full 50% retracement of the month long break to 105.00. This move has not changed the main trend, but at this time is just alleviating an oversold condition. The old bottom at 104.95 may also serve as resistance.
USDCHF: The USDCHF held last week's low at 1.0134 and rallied. The market stopped at a down trending angle at 1.0307 today. A breakout over this price is likely to trigger a full retracement of the last break to 1.062. If you missed the bottom, then look to sell a rally back to 1.06.
USDCAD: There was very little movement in the Canadian Dollar on Tuesday. Technically a breakout through .9976 would be bullish with a drive to 1.00 possible. Par is resistance but also a critical pivot price. Continue to look for choppy two-sided trading until a trend develops.
AUDUSD: The AUD broke into a 50% to .618 support zone at .9185 0 .9116. Buyers stepped in and triggered a rally. The short-term range is .9499 - .9147. Look for a rally to .9323 - .9364. If the market is making a long-term top then the rally should fail here for the start of another break down to .9005. Gann angle resistance is at .9319. Watch the price cluster at .9319 - .9323 to be important resistance.
NZDUSD: The short-term range is .8215 to .7874. Watch for a rally back to .8044 - .8085 for the next selling opportunity. If the market is topping out, then look at a rally to this zone to set up the next long term break.
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