With the Fed’s rather predictable decision on interest rates cut by 0.50% September 18 (last Wednesday) dollar was doomed to cross the 1.4000 level (on EUR/USD). Its fall continued through all days left after the Fed’s statement release. Hitting historically high levels with the maximum at 1.4120, USD ended last week above 1.4000, thus opening further opportunities for the EUR/USD to go to the new maximums.
This week can show (or maybe even it should show) some correction — fall back to 1.3900–1.4000 level is possible, but it is very unlikely that EUR/USD will close below 1.4000.
The main question is if the EUR/USD has enough vigor to rally to 1.4500? Or does its potential end in the low 1.4000–1.4100 levels? If we look at USD interest rates — they are still quite high. 4.75% provide a lot of place for the Fed to cut them in order save the stock and real estate market bubbles. On the other hands with the explosive end of all carry trade and consequential inevitable U.S. real estate sector collapse, Fed can decide to stay away from interest rates and with the fall of stock market USD will rise. But it is very unbelievable scenario for it to happen before the end of 2007. So, the best choice for now is to look at Fed and stay bullish on EUR/USD as long as Fed keeps on saving the financial markets, not the dollar.
