I was wondering aloud earlier this year whether the very bullish long term setup for USD had a serious chance of playing out while Bernanke and the Fed were the guardians of the US Dollar's value. It looks as though that question may now have been answered, with the US Dollar collapsing under the double whammy of major QE starting in Europe and apparently in the US as well. I say in the US as well, as there seems to be a solid consensus that QE3 will be announced by the Fed tomorrow, and I'm assuming that must be due due to off-the-record briefings and pre-announcement spin by the Fed. We'll know for sure tomorrow.
Overnight the German Constitutional Court ruled that the ECB bond buying program could proceed, undeterred by the clear breach in spirit of both the German constitution, and the EU laws inserted by the Germans when the ECB was founded that were designed to avoid money printing. Nothing new there however, the Germans also insisted then that clear rules were made to prevent potentially insolvent countries from joining the Euro, and those were ignored by everyone subsequently as well. Why mess with a winning strategy?
As this is happening in the background the Euro is sort of collapsing upwards. It's worth having another look at the rising wedge on the EURUSD chart to note that the upside target on a break up is in the 1.34 area. In my experience rising wedges that break up are rather better at reaching target than ones that break down:
If the Fed doesn't announce QE3 tomorrow then the reversals on everything may well be severe. If QE3 is announced but is smaller than expected then we may find that it has mostly already been priced in and may then see a 'sell the news' reaction. We shall see.
In the meantime long entries just under major resistance are very risky, and short entries just before a likely announcement of a major quantitative easing push are also very risky. Cautious traders will be sitting this one out during the announcement.
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