Ralph Shell @ 1:33 PM, Monday August 09 2010
Traders who left USD short trades in place over the weekend have yet to receive an ample reward. Confirmation that the economy remains sluggish in the US is expected to be released in tomorrows FOMC statement. The fear of a dreaded double dip recession will keep the .25% rate in place for the foreseeable future, and the market expects Fed Chairman Bernanke to hint about the expansion of the Fed's balance sheet to provide banks and businesses with more funds. There are limits, however, on the effectiveness of fiscal stimulants at a time when the government regulators are on the march.
An article in this morning's Washington Examiner discussed the exit of Christina Romer and, in part, her legacy when they said: "As Romer fades back to her teaching post at Berkeley, Obama is adding to the economic misery by creating an environment of regulatory uncertainty. The Wall Street reform law Obama recently signed potentially requires 533 new regulations, 60 studies and 93 reports, according to the U.S. Chamber of Commerce. Obama's Environmental Protection Agency has 29 active rulemakings, and there are 100 new rules on the Labor Department's agenda and 26 at the Transportation Department.......(continuing)...Add Obama's determination to raise everybody's taxes by allowing the Bush cuts from 2001 and 2003 to expire Jan. 1, 2011, and it's easy to why banks, businesses and consumers are hoarding trillions of dollars that could otherwise spur economic growth. And we haven't even addressed the destructive effect on economic growth of Obama's nationalization of major portions of the economy, including the banks, health care and the auto industry."
While the banks may have ample funds to lend, and are encouraged to do so, the private sectors demand for money might be less than expected because of high taxes, more government regulations, and fear of the future health insurance costs. The threat of deflation is another detriment to expanded business activity.
The EUR/USD has enjoyed a nice upside run, with few interruptions. Eventually trends do end with a reversal, but with the continuation of USD bear news, it is hard to forecast a reversal. Let's try to buy a pull back to the 1.3180 level with a stop at 1.3120, and a target price of over 1.33.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.