Two weeks ago, the USD surged on comments from Fed Chair Bernanke, sending the pendulum to the extreme side of USD strength. By the end of that week, however, the pendulum had swung all the way back to extreme USD weakness after the ECB indicated it is increasingly likely to raise rates at its July 3 meeting and the US unemployment rate unexpectedly surged. This past week saw the pendulum swing once more to the extreme side of USD strength on continued hawkish rhetoric from the Fed and some better than expected US data. This type of price action, while extreme and ultimately frustrating for break-out traders, is the essence of a range, which has been the defining feature of Forex markets over the last two months. Range conditions developed primarily because key central banks effectively moved to the sidelines in terms of adjusting interest rates. The Fed shifted from easing to steady, as did the Bank of England, while the ECB was caught between slowing growth and high inflation. Central bank interest rate expectations are now in flux and promise to make trading conditions extremely challenging in the weeks ahead. The predicament comes from the market's rather extreme reaction to what may be only minimal interest rate moves. However, an end to the recent 1.53-1.58 EUR/USD range may finally be at hand.  Full text »

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