I don’t usually make trading decisions before the NY close. I’m a trend follower and focus on what IS rather than what I think or feel. However, my system rules are very specific and include a “score” from my daily fundamental analysis of world affairs. There are almost no single events that can change the sentiment of the “smart money.” But once in awhile, we do get a big surprise, and a prudent trader has to factor for those surprises in his system rules.

This morning the Chinese surprised the world markets by raising their interest rates for the first time since December 2007. This surprise move puts the global economic recovery in doubt and caused investors to move their money from energy, minerals and world currencies linked to those asets into the perceived safety of the USD.  Why does the Chinese interest rate move other currencies?  Well, let’s use the AUD and NZD as examples.  The AUD and NZD are tied closely to commodities.  The Chinese are major purchasers of these commodities.  When they increase interest rates, it’s a sign that they’re economic growth will slow.  As the Chinese economic growth slows, so will their appetite for commodities.  Everything is relative in markets.  big money traders have also likely priced in any Quantitative Easing efforts from the Fed. 

I’m not ready to say that we’ve seen the bottom for the USD, but I’m willing to sit on the sidelines and watch the retracement unfold and get back in on the next confirmed trading signal. 

Good luck out there!

Tim