Here we are, one week out from the launching of QE2 and the dollar is much stronger than it was headed into the meeting. The fact that the dollar’s slide was so short-lived is the key factor in this equation.
The inability of EUR/US to rally today on the news that China’s primary ratings agency had cut its US debt rating was another very telling factor. The market has priced in low rates, hyperinflation, US political isolation, pestilence and various poxes so it needed more than a known event (QE2) to keep the ball rolling.
In the last week we’ve had an upbeat US employment report, a blow-out in Irish bond spreads and back-up in US yields. All these nagging factors have been working on the psyche of EUR longs/ dollar shorts before coming to a head over the last several hours.
I’d take a few chips off the table in the 1.3700/50 area if short and look to to sell rallies in EUR/USD near-term. Keep a core short in case EUR/USD slumps through 1.3700, the lows set back on Oct 20.
