Dollar Rebounds - Central Banks Intervene - Happy Holidays!

Over the past month the US Dollar has pulled the pendulum back from the brink of the breaking point. November 9 showed the British Sterling peaking at almost 2.12 to the Dollar. Two days earlier the Canadian Loonie put the dollar at 0.90 cents.

That’s just too much loss of value for the worlds default currency too fast. As we head into the end of 2007 and the week between Christmas and New Years the US Dollar has regained some of it’s luster - back below 2.00 for the Pound (1.98) and back at Parity with the Canadian Loonie.

Foreign Exchange Markets Never Go On Holiday

What About Traders?

It’s hard to imagine that the worlds banks and traders can continue to ignore their large and long term positions during low volume Holiday trading sessions. In the US you have 24 hour mini-markets open 7×24x365 to sell milk, beer, and cigarettes.

It’s Different This Time! 

The Central Banks of the world on December 12 determined that they must work together to avoid a global financial malfunction. Since that announcement you can see on the charts what some people might call intervention and support of the US Dollar.

The Big Question is:

Will there be a major move during the “low volume” “empty seats” Holiday week?

Pound-Yen Paused for Major Move?

(Click to Enlarge Chart)

Jerry Furst  broadcasts weekly on FX Street with “1stonForex the Week Ahead” and facilitates and presents his own live educational workshops. Jerry is an active trader, educator, and Founder of Investors Education Network (IEN), he is also a mentor and trading coach to select clients. Click Here for a Free Survey and 30 Minute Consultation

Will Rate Cut Have Any Real “Effect” - or is it “Affect”?

Let’s use an example of how these two similar words, effect and affect should be used in a sentence: “Rising oil prices will have an effect on nearly everyone” and “Rising oil prices affect nearly everyone” … Does the difference really matter? That is today’s English lesson on pseudo semantics! Now you may be asking, What does that have to do with…

The Fed Funds Interest Rate…..?

Yeah, well - meanwhile back at the Fed chairman Ben Bernanke and team will be deciding the fate of US Interest Rates.  Initially expected to be cut .50 to  4.00% the consensus is split at 50/50 chance of only a .25 cut to 4.25%.

Again, does it really matter? If the banks are tightening credit and borrowing practices -  who will get to use these lower rates?

Or again, does it really matter as oil and the price of gasoline may have a more real “affect” on the masses or the mortgage mess!

The Discount rate is also coming up as a topic of primary debate and concern. The general consensus (read guess) is that the Fed will lower the discount rate .50 to bringing it to 4.50%

Oh - did I forget to mention the “effect” a lower US interest rate may have on the US Dollar?

Uncertainty = Volatility = Opportunity (?)

Whenever there is uncertainty before a Interest Rate announcement there is  opportunity for surprises. This happens as volatility usually dries up prior to the decision and then can spike on the news, especially if there are any surprises.

Because this decision seems to be such a 50/50 coin flip - traders should be aware and they may want to step aside  - or take appropriate action prior to the news to avoid a nasty spike!

Or….. If you like volatility and know what you are doing - Trade!

Live Webcast Coverage of FOMC Interest Rate Announcement on FX Street

Tune In and Watch the charts and Analysis Live - Before, During, and After the  US Interest Rate Announcement as Ben Bernanke and the FOMC Team decide to lower, raise or leave US Interest Rates Steady.

The broadcast begins at  17:30 GMT (13:30 EST)

Click Here to Register and Tune In

Although the US Dollar has regained some of its lost ground last week - the greenback still has far to go to regain it’s former luster. There is lot’s of news this week on the schedule.

International Interest Rate Watch followed by US Non Farm Payroll

Tuesday holds interest rate announcements from Canada and Australia and Thursday for the UK and EU. It is widely expected that all rates will remain unchanged.

For the US Dollar and currency traders, interest rates are key. The fact that so many other countries are lined up with the potential to adjust their rates this week means that any surprises will bring a jolt to the currencies.

Arm Wrestle Between Non Farm Payrolls or FOMC for US Dollar

The US Economy is under close scrutiny as anxiety continues over the sub-prime mess clearly spilling over to Prime Time. What is more important - unemployment rates or interest rates? 

Any Other Surprises to Watch For This Week?

Continued anxiety in the equity markets as the financial markets and financial institutions are showing continued signs of strain. The recent US stock market rally may very well be repatriation of US Dollars.

The Arab gulf states are meeting this week  (GCC Summit) to discuss - amongst other things - whether they should continue to peg their currencies to the US Dollar. It is expected that all countries will keep the peg in place until 2010 - except for Kuwait who has already decoupled - nice way to say thanks! Good article on Bloomberg for more details on the GCC Summit.