Forex Trading - Get Ready For Big Dollar Rally !

The dollar looks set to rally strongly despite the fact that at present it is on the ropes. The trend is down but the rally is coming for the following reasons.First consider a simple equation for market movement: Supply and demand fundamentals + Investor Psychology = Price

We all have the same facts to see but we all see them differently and colored by greed and fear. It’s a fact that prices collapse when there most bullish and rally when their most bearish – this is investor psychology at work.

Prices are pushed to far by greed and fear

The fact is despite the bearish fundamentals prices have moved to far too quickly away from the fundamentals. Sure The US economy is not out of the doldrums but the market has ignored news that is bullish. A robust jobs report that was way above market expectations on Friday.

Last quarters GDP was impressive which recorded its highest level since Q1 2006 at 3.8%.FOMC Cut rates by 25bps but this could be the last cut if you look at the statements that surround it.

Sure there are credit problems and problems with consumer confidence but we know that already – the fact is things are getting better and the market is simply ignoring the potential good news and with sentiment reaching a bearish extreme – Expect a counter trend dollar rally.

The most amusing bit of news I heard was on Monday - Gisele Bundchen (the Brazilian supermodel) wants to be paid in any other currency except US Dollars! The old saying goes if the man in the street wants to buy a stock - sell it. The same applies here to many people are bearish and a large short covering rally is now not far away.

The Facts:

The fact is the US Economy is not going into recession, interest rates are not going to drop much further (25bps at best) and GDP and jobs are showing signs of recovery. This data if it remains firm will spread through the economy and instill confidence.

The dollar is not dead yet and a big rally is coming and crude prices should also break Crude Oil continues to move toward the $100 a barrel mark but prices will not hold here and a fall in crude prices will support the dollar.

The Organization of the Petroleum Exporting (OPEC) countries, source of more than a third of the world's oil, has agreed to raise production by 500,000 bpd from Nov. 1. The group has ignored calls for additional oil from the big global consumers such as The US, blaming the rally on speculators and geopolitical tensions, not falling supplies and their right.

This is another speculative bubble waiting to burst.

Global demand for crude is falling not rising and this bubble will burst and we see crude returning to the $80.00 a barrel level shortly. The rise is unsustainable and so to is $100.00 a barrel. So while a Brazilian supermodel may encourage others to think the dollar is dead - think I will be looking to buy.

I also keep reading ridiculous stories about world crude oil running out and heading for $150 – think I might look to sell that to. The fact is all short term price spikes are temporary and prices return back to fair value the dollar is under fair value and crude above. While the madding crowd may push prices to more extreme values in the short term expect some sanity to return to dollar and crude prices.

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