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Originally Posted by mdetlh
You sound like you are asking about the current situation. Am I correct? Without getting too long winded I think I can get you up to speed on some fundamentals here.
The most USD negative news in the last 2-3 weeks is the subprime lending market is having trouble with defaults on mortgage loans to less than prime credit worthy individuals. That is the background to the interest rate decision by the USA Fed this week. The other news in this regard is that the Futures market is pricing in another 3 interest rate cuts by the Fed, the Fed isn't obligated to do what the futures market is speculating that the Fed will do. However, other major currencies see the futures market speculating about 3 rate cuts and then the Fed doesn't sound as interested in raising rates as in previous months and so that's another reason to speculate that there may be an imminent cut as in within a month or soon. Hence you see the USD losing across the board in the last couple of weeks. Then the USD gains strength today, cause currency traders start to realize that maybe the Fed isn't all that interested in cutting rates soon after all. Now we wait to see what further reports will show if the housing market, a key factor lately, among others, on whether people speculate whether or not the USD will gain strength or not.
Thats why I panned this blogs decision to go short the AUD/USD, even though the AUD is rarely this high against the USD, cause there maybe AUD rate increases and everyone thinks that there is reason to believe that the USD will cut rates sooner or later.
Does that help?
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Hey. So you say that traders realize that there will not be a rate cut, strengthening the dollar, but what about the ones that still speculate that there will be rate cuts, weakening the dollar? Would this cause most Dollar pairs to range? Thanks again. Reps.