The U.S. Dollar finished sharply lower last week after the Fed strongly hinted that it would provide more aid to prevent the economy from derailing. Foreign currency investors reacted as if the Fed had given them the green light to sell the Dollar, delivering a crushing blow to the greenback against all major currencies.
Many investors now feel based on the tone of the Federal Open Market Committee’s statement that it was getting ready to rev up the Treasury printing press for another round of quantitative easing in November.
The USD JPY finished the week lower after ending last week in a position to break out to the upside. The break in the Dollar/Yen triggered a retracement of the entire “intervention rally” from over a week ago. The inability to follow-through to the upside may have served as further proof that interventions are hard to pull-off without the help of other central banks.
For several weeks prior to the intervention I had warned that Japan’s first intervention in over 5 years would likely fail if the Bank of Japan was forced to go it alone. With most major central banks facing economic problems of their own, it was highly unlikely that they would buy Dollars and sell Yen just to help Japan’s economy improve. In fact, after the Fed hinted hard of additional quantitative easing, some accused it of deliberately weakening the Dollar, thus reducing the impact of the BoJ’s intervention.
Late in the week, the USD JPY rallied sharply higher overnight on speculation that the BoJ had intervened again. This proved to be a rumor and the Dollar/Yen resumed the down slide it had begun earlier in the week.
Without the cooperation of other central banks and facing a weakening U.S. economy, it is likely the Japanese Yen will continue to rally next week with very little chance Japanese officials can stop it from appreciating further.
Local: 312-896-3930
Toll Free: 800-971-2440
Email: Info@BrewerFX.com
Website: www.BrewerFX.com
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 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.
