With Lehman's bankruptcy, and Merrill being bought out by BOA and all the buzz about the Fed's 25bp cut on the rate speculators are talking about another bearish week for the dollar.

My question is just because the dollar is weak wouldn't that imply that other currencies that it's paired with as the base currency would rise. So in other words EUR, GBP, AUD, NZD? But, and I haven't been following all pairs, the EUR has been bearish since mid July if not longer so how would the dollars decline relate to the EUR being bearish shouldn't it be opposite.

What I mean is shouldn't the overall trend of the EUR be bullish if the USD is declining.

I would love someone's technical and fundamental analysis on this.

Thank you.

Hi Mars401,

Glad to hear from you.

You are correct that if the US Dollar is weak then by definition the currencies that are paired against it should strengthen in relation to the US Dollar. I think where the confusion lies here however is that while there has been a lot of talk about the US Dollar weakening as a result of the financial crisis and expectations shifting from a fed rate increase to a fed rate cut, the actual reaction to all this from the dollar has been relatively mixed.

While we did see a broad weakening of the dollar initially against most currencies, once the market had time to digest the news, and because traders piled into US Treasuries for safety (creating a demand for US Dollars), the dollar regained much of the ground it had previously lost against the Euro for instance. As you can see from the chart below, the dollar has recouped much of the ground it lost on the news against the Euro making the move weaker in the US Dollar small relatively to the huge gains that it has made against the Euro in the last month and a half.

EUR/USD Daily


Hope that helps. If there are any other questions or comments please feel free to post as always.

Best Regards,
Dave

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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

that makes plenty of sense and furthermore I must say you eat those fancy suite wearing analysts for breakfast.