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by ForexNewsNow Team on November 3rd, 2010

EUR/USD spikes, then falls after Fed announcement

us federal reserve usd eurNEW YORK (Forex News Now) – The EUR/USD has spiked as traders anticipating a large move in the Fed’s policy have seen the numbers come out, and are presently expressing their point of view.

The Federal Reserve has said that they plan on an additional $600 Billion in stimulus policy, which is on the low-end of most estimates. The market has shown a rejection of the expansion of the euro, at least for the short time.

FX traders will have to sort through quite a bit of information over the next few days, not the least of which will be the ECB’s rate announcement, and more importantly, it’s statement, and the Non-Farm Payroll report on Friday.

The Fed is expected to purchase new assets of $600 billion through the month of June, and that it expects to re0invest $250-$300 billion of expired securities to help the weak recovery going on in the United States. As the traders expected up to $1 Trillion, this is going to be seen as a “disappointment” by the stock market, as it followed the same trajectory as the EUR/USD, up sharply, then retreating.

As you can see on the chart below, we are still sitting in the 1.40 area, even with that sudden spike. It look like traders will have to weigh a lot more than just the number, as the various forms of stimulus could end up coming into play.

As a general rule, when the Fed “prints” money, it is normally good for equities, and various riskier assets, like the Euro. However, the problem with the European banking system is out there still, and as such, could be weighing on the common currency for a while.

Prudent FX traders will allow the dust to settle, and see where we are in the big picture later tonight.

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