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10/07/2007 - Markets are reducing expectations of an Oct. Fed rate cut

Posted by FOREX.com's Weekly Strategy in October 5th 2007  
* Markets are reducing expectations of an Oct. Fed rate cut
* USD gloom remains post-NFP; carry trades/risky plays prevail
* Eurozone Finance Ministers to decry EUR strength to little avail
* BOJ will stay on hold for another meeting
* US Sept. advance retail sales are the next big clue

The USD finally found some support this week and managed to eke out small gains against EUR, GBP and JPY, but it remained weak against the commodity currencies AUD, CAD and NZD. JPY-crosses, the 'carry trade', along with other risky assets such as commodities and stocks, also posted solid gains for the week. In general terms, these developments suggest risk-aversion continues to wane and that should keep the upside open for further gains in JPY-crosses and commodity currencies versus the USD. The price action following the US NFP report was also revealing in that the USD was unable to sustain any of its gains from the data and looks set to finish the day weaker against EUR and GBP in particular. The daily candlestick pattern (a Hammer) from Friday suggests that the downward correction in the EUR/USD has already run its course, opening up the prospect for renewed attempts higher.  Full text »

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Filed under: Weekly Strategy