Forex spread trading in the wake of the latest Fed announcement

Written by Sam Coventry Wednesday, 11 August 2010 08:20

Forex spread traders will this morning be lamenting over their stop losses breached in the wake of a rampant US Dollar. Others will have read the weakness in the global economy, seen the US Dollar as being oversold and will now be sitting on some tidy profits courtesy of their faith in the US Dollar.

I, for one, am in the former group of forex spread trading participants who took out a position against the US Dollar.

The US economy is certainly not out of danger said the US Federal Reserve last night as it sought to maintain measures to keep the US economy buoyant.

The news sparked an initial sell off of the US Dollar, but, on opening Asian forex markets bought into the US Dollar reaffirming the global reserve currency's status as a safety net for investors.

The EUR USD exchange rate extended losses to trade more than 1% lower on Tuesday on a growing view the Federal Reserve is unlikely to announce any aggressive easing measures at the end of its policy meeting later in the day.

The British Pound declined against the U.S. dollar to its lowest level in more than a week after data signalled Britain's economic recovery may be slowing. The Cable has been overbought in recent weeks and now we should have a correction, analysts said.

The pound also dropped versus the Japanese yen after a U.K. housing- market gauge showed the first decline in prices in a year in July. The U.K. currency was little changed at 83.14 pence per euro.

The GBP USD extended its 1.4% decline over the past two days, should the Bank of England's Inflation Report today at 9:30 GMT add to evidence the economic recovery is slowing.

So what should those looking at spread betting GBP USD be looking for?

According to Forex Yard, the online forex trading company, sentiment in the Cable appears to be shifting.

"Monday's trading had the pair forming a bearish engulfing pattern and yesterday the pair closed near its opening price forming a rickshaw man. The long upper and lower shadows of yesterday's candle show indecision on the part of traders," reads a morning report.

As such Forex Yard have said, "as this candlestick appears at the top of an uptrend, it could signal a top in the recent bullish move. Support and resistance lines are found at 1.5700 and 1.5960."