The FED finally comes to the US Dollar's rescue
As soon as the Federal Reserve Chairman Ben Bernanke announced on Wednesday that the U.S. economy is expanding strongly enough for the central bank to consider slowing the pace of its bond-buying stimulus later this year, the US Dollar started its march higher.
And boy has it been a good one! We have seen more than 200 pips drop in the EUR/USD pair.
The chairman’s confirmation that the Fed is getting ready to reduce its pressure on the gas pedal by reducing the $85 billion dollars of asset purchases per month confirmed investor fears, sending stocks and bonds sharply lower and pushing benchmark Treasury yields to a 15-month high. While growth rate should remain moderate, it should nevertheless lead to further recovery in the job market as negative factors ease, Bernanke said. He also said that policymakers at the FED expect inflation to gradually move up back toward their long-term 2 percent objective.
Binary options traders should maintain rather bullish views on the USD and look closely for new opportunities. The pull out of riskier assets gained additional momentum from a survey of China's factories released earlier on Wednesday, which confirmed fears of a deeper slowdown in Chinese growth rates. Activity was reported at a nine-month low just as pressure in the nation's money markets is rising to record levels in 7 years.
The other factors behind EUR/USD moves today were reported out of Europe - Spain's central bank governor Luis Maria Linde said on Thursday that the banking crisis is not over yet in his country. Whilst national lenders can probably cope with additional provisioning needs, Spanish lenders are in the process of reviewing their 208 bln Euro of refinanced loan portfolios and this process can lead to further provisioning needs of up to 10 bln Euro.
The rate is currently trading at levels close to the daily low marked after the release of a much better than expected existing homes data. Those were reported at the level of 5.18M in May, from 4.97M registered in April, the National Association of Realtors said on Thursday. Consensus pointed to an increase to 5M. This is a net change of up 4.23% from April, versus projections of a rise of 0.6%. The month before it amounted to 0.6%.
Looking at the chart we‘rе observing a rather dramatic drop in the EUR/USD but in our opinion this is well supported by underlying fundamentals. Whilst a rise to 1.3250 is not out of the question we would be meeting it with an attempt to sell puts. In fact we would recommend to try selling puts once we hit 1.3230. In the current environment it will take a boatload of negative news for the USD to reverse this trend. And should we brake 1.3150 we expect to quickly see 1.3000 and possibly below. We advise extreme caution on buying calls in any currency against the USD right now.