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EUR/USD: Don't Get Distracted by News
What matters to the trend is not the news -- it's how forex traders react to it.
Today (Thu., April 9) gave us a classic example of why you cannot rely on "fundamentals" to predict which way the U.S. dollar and other currencies will go.
Thursday morning, the exchange rate between the euro and the dollar (known as the EUR/USD) hovered around $1.33. An early morning news headline read,
U.S. Dollar Generally Weaker As Equities Remain Modestly Higher
Thu Apr 9, 2009 07:34am (CEP News) - The U.S. dollar is weaker against most major currencies on Thursday as global equity markets continue to move higher. The greenback's limpness can also be attributed to the aftermath of a larger than expected Japanese stimulus package, and some potentially upbeat results on the stress tests for U.S. banks.
It all sounded good: Stocks were up, the dollar was lower, and central banks were in control. And yet shortly after, the USD took the upper hand and by lunch time on Thursday strongly gained on the euro, pushing the EUR/USD 200 pips lower. (That's despite the fact that the DJIA was up 200 points Thursday morning -- aren't U.S. stocks and the dollar supposed to diverge?)
How can that be? As we've said on these pages before, what matters to the trend is not the news -- it's how forex traders react to it. News can be a catalyst, but the direction of the move is always going to be determined by how traders collectively feel about it. If they are bullish, they'll use the news -- any news -- as an excuse to buy, and vice versa if they are bearish.
That's why the real key to the forex market is knowing the collective mental state of its participants. And that's exactly what Elliott wave analysis tells you. On Wednesday evening, Elliott Wave International's intensive Currency Specialty Service posted this forecast:
EURUSD
Update for: Thursday
Posted On: Wed, 09 Apr 2009 04:00:34 EDT
[Topping, lower] While not by much, EUR$ traded lower for a third straight day. Add to that the rebound we did see is, so far, in a corrective three waves to resistance in the 1.3300 area. There is no reason to alter the larger bearish outlook.
What's more, the latest Currency Specialty Service forecasts say that by the looks of it, the U.S. dollar's strength is not over. Get the details now -- and don't get distracted by "the fundamentals."
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