Fed Takes Aggressive Action to Improve Liquidity

I mentioned in my previous post that I was long USDCHF and short GBPUSD because I believed that the bottom and top were in place respectively. USDCHF has made a beautiful spike up from 1.0150 levels all the way to 1.0350! GBPUSD has fallen too, but not as much so I'll hold on to it for a little longer.

Although in Elliott Wave Theory, we do not say that events causes certain price movements, events and news are often the catalyst for the prices to move in the predicted directions. So what has been the catalyst this time? I opened my mailbox and CNN and my RSS Feeds have delivered a few interesting news feeds to me:

• U.S. trade gap rises to $58.2 billion in January, less than expected
• Federal Reserve unveils plan to lend $200 billion in Treasurys in an effort to 'promote liquidity' in financial markets
• Fed's coordinated liquidity steps boost dollar

Actually, I had expected US Trade Gap to drop, since USD is at all time lows and exports should be increasing, nontheless, a lesser-than-expected increase does strengthen the dollar.

What I'm confused over is the increasing of liquidity into the markets by the Fed. If memory serves me right, the last few times when the Fed actually pumped money into the economy to increase liquidity (that was around Sep-Dec 07 I think), the stocks loved it and rallied. But the dollar tends to drop on increased liquidity. This time round, it actually strengthened the dollar! I'm no economist, but sometimes, these things really makes my head spin! If there are any economic's trained people out there, feel free to let me know why this is so. Haha.

Alright, that's it for now. Take care, and good luck with your trades!