An interest rate is one of the key elements to valuing a currency; however, there are times when other factors are more important to the market. Considering the dollar’s consistent strength in the face of the Fed’s lowering the benchmark rate to 1.00 percent, this is one of these times.
- British Pound Spikes Amidst Wild Volatility, Falls Back as BOE Minutes Signal Further Rate Cuts - Japanese Yen Jumps While US Stocks Close at Lowest Levels Since March 2003
The Euro remains in a tight wedge formation against the US Dollar, with Rangebound price action likely to culminate in breakouts through short-term currency trading. Given a previously bearish bias on the Euro/US Dollar pair, a downside break and further US Dollar strength seems the more likely outcome.
The Dow Jones Industrials Average finished 427 points lower on the trading day, sending both the US Dollar and the Japanese Yen substantially higher through the close. In fact, the Dow closed below a key 10-year rising trendline, and a continued breakdown would suggest that the decade-long Dow uptrend is over. Further Dow Jones losses would almost certainly force further gains in the Dollar and Yen—especially as the correlation between the Dow Jones and the Japanese Yen remains at its strongest levels in at least 20 years.
The DailyFX analysts correctly betted against the commodity dollars to start October but the exaggerated moves left them susceptible to retracements that saw price action at the end of the month go against the trend. The expected decline in the global economy had sunk commodity prices taking the Canadian, New Zealand and Australian dollars in tow.
Fibonacci studies are an excellent tool for a forex trader to use because they can act as a leading indicator. If used properly, the can help you to determine when to get into a trade. More importantly, they can help you get out of a trade too.