Now that the Fed news has had a few hours to sink in, the speculation and conjecture about the future of the euro, dollar, and Wall St. are already beginning. The Fed's move is absolutely abysmal for the USD, there's no denying that fact. But, I want to be clear, this does not mean I'm loading up on EUR/USD longs at the 1.3450 level.
I believe after the European session opens there's a potential for the EUR/USD to retrace whatever gains it makes at the end of the Asian session. We know that price action behavior patterns tell us sharp moves like we saw yesterday can retrace all the back to the point of lift-off. That would mean an almost 500-point retracement for the euro. I'm not saying we'll go that far down, but I'm certainly not looking to add any new positions here at this level and prior to the London session.
It's important to remember the Fed totally changed the rules and it will take weeks if not months for the full impact of their actions to even begin to take hold and shape the next evolution of the global financial markets.
From a pure risk management point of view I would caution against adding new positions here, at least let London have a chance to sort through things, they were not even open when the FOMC announcement hit. Market participants will have a lot of re-positioning to do over the coming days. This means loss-taking, profit-taking, and adding new positions in the market.
Banking institutions will need to rethink their game plans and their economists will have a whole new set of challenges to work through. Hedge funds will have to rework their game plans. Treasuries used to be considered the #1 safest investment on the planet but I'm not so sure that's the case anymore. I think the Bernanke just put every investment at even greater risk, including Treasuries, and all asset classes will now need to re-assess risk because risk has been calculated using safe long dated Treasuries as a basis.
Some traders have indicated they are stuck in euro shorts. The best advice I can possibly give is to maybe wait until London opens to see if the euro pullback and you can get out of your short. There's no way to predict, though, the Fed declared open season on the dollar.
I believe after the European session opens there's a potential for the EUR/USD to retrace whatever gains it makes at the end of the Asian session. We know that price action behavior patterns tell us sharp moves like we saw yesterday can retrace all the back to the point of lift-off. That would mean an almost 500-point retracement for the euro. I'm not saying we'll go that far down, but I'm certainly not looking to add any new positions here at this level and prior to the London session.
It's important to remember the Fed totally changed the rules and it will take weeks if not months for the full impact of their actions to even begin to take hold and shape the next evolution of the global financial markets.
From a pure risk management point of view I would caution against adding new positions here, at least let London have a chance to sort through things, they were not even open when the FOMC announcement hit. Market participants will have a lot of re-positioning to do over the coming days. This means loss-taking, profit-taking, and adding new positions in the market.
Banking institutions will need to rethink their game plans and their economists will have a whole new set of challenges to work through. Hedge funds will have to rework their game plans. Treasuries used to be considered the #1 safest investment on the planet but I'm not so sure that's the case anymore. I think the Bernanke just put every investment at even greater risk, including Treasuries, and all asset classes will now need to re-assess risk because risk has been calculated using safe long dated Treasuries as a basis.
Some traders have indicated they are stuck in euro shorts. The best advice I can possibly give is to maybe wait until London opens to see if the euro pullback and you can get out of your short. There's no way to predict, though, the Fed declared open season on the dollar.
Leave a comment