On the surface, today’s GDP number was a horrible miss which no doubt had some traders speculating that the dollar would strengthen and reverse movement seen overnight as the GDP indicated that the recession has not found a bottom and the market would revert back to risk aversion mode.
However, the market is looking for anything positive in major releases and a closer look at the report revealed that declining inventories may be an indication that growth will make a comeback in the second half of the year and consumer spending increased 2.2% annually last quarter, the most in two years. As a result, after the initial reaction of dollar strength, the majors continued the direction seen overnight. and the dollar closed the day lower against all of the other major currencies, except the Japanese yen. U.S. equity markets rose on positive earnings, while oil and gold posted small gains.
The FOMC rate decision was largely a non event as the Fed kept rates unchanged, as expected, and held back from increasing purchases of Treasuries and mortgage securities. The announcement did, however, pull the dollar off the lows of the day. The dollar closed the day lower against all of the other major currencies, except the Japanese yen.
4 Hour Chart trend: Mixed
Main price points: 84.46 and 86.00
Looking for: Break through 84.46
The $ Index is trading lower after prices hit the 61.8% retracement of our wave I) distance. It seems that the 86.00 high is the top of corrective wave II) from where we may see much lower prices in wave III) if the 84.46 lows gets broken. In this case should traders with a short bias will be targeting the lows of previous wave X). Meanwhile the 86.00 highs needs to hold for a valid wave count.