Historically, if the Fed drops interest rates, does that make the dollar stronger or weaker? Does EURUSD go up or down? It would seem that it would generate more home sales, but at the same time if the USD interest rate goes down, it hurts the swap generated with USDCHF and USDJPY.
If FED decreases the interest rates… Dollar gets weak.
USD/JPY and USD/CHF goes down.
EUR/USD goes up…
Say like if Interest rate is up… people will say its better to buy Dollar, cause we will get good interest rate to keep in bank the DOllars… so they buy more dollars…
I am talking about people who deposit 10 Million Dollar in Banks and such, and they getting interest on that amount is HUGE!!!..
So if interest rate down, Buy EUR/USD
If up, Sell EUR/USD
I’m guessing todays price shifts were a reflection of expected future action by the fed. So, unless there are more surprises, it should already be factored in.
Usually you would take a look at the historical actions that occurred during rate changes, however this time it is not the case, and it is not “predictable” as other times due to different reasons:
- We are in a “crisis” period and each goveror has it’s own way of dealing with crises. E.g. Greenspan ( the former FED chairman) would have certainly cut reates by now, he even said that alredy before it all happened. Ben Bernake instad has a totally different approach, and he is trying to calm the markets with words, rather than with a rate cut.
- Now it is not fundamentals that drive the market, but rather SENTIMENT, meaning that a rate cut is more likely to bring down eur/usd than make it go up, due to the fact that “the feeling of a collapsing US economy” would be less persistent and therefore we could see a stronger dollar. As for carry trades ( usd/jpy ), again it is down to SENTIMENT, now more than ever ( ever=last 7 years).
A rate cut would indeed mean less interest rate differential in our pockets, but what investors are now looking for is to calm FEAR a little bit so the diference between interest rates is not a top priority.
To summarise, it is not a good moment to look back at past action and detrmine wich way to trade it. Particularly if you are new to this i would suggest staying out of the market , because even the “big boys” have no certainty what will happen.
Good first post! This is my exact feeling as well… lets hope we are right