Phase 3 – Economic growth Gradually, the situation becomes better, fundamental data starts to show improving of the economic environment. The real economy sector start to think about expansion again and increases production, demand on credits and loans starts to grow; financial participants’ appetite for risk starts to increase. Since overall optimism picks up and the market is ready to invest and take more risk – the dollar starts its appreciation. Later, when the first signs of inflation growth start appearing, the Fed launches a rate hike cycle – this plays also in favor of the greenback. Pipruit: Sir, and can’t we see it currently? I mean, the recent crisis has started in 2008, can we see Dollar Smiley on US DX now? Commander in Pips: Let’s take a look… Chart #1 | Monthly USDX Well, we clearly see risk aversion that was confirmed by the plunge in US GDP and interest rate decreases in 2008. Since GDP and the overall economy has fallen in recession – the dollar has turned south. Strong and deep recessions almost never finish with “V” bottoms, so that has happened again. Although the GDP holds relatively well, but lower than before the crisis – there were other problems, such as unemployment, weak real estate markets etc. So the market has shown an attempt to “smile” on USD Index, but later the second phase of recession has come to create a “W” bottom reversal. Also I’ve added AB-CD pattern, so that we can treat whole this pattern as W-shape recession bottom – probably it’s quite correct. From that point of view, the “real smile” is only ready to start. So we are standing at the eve of the second attempt to “smile” and probably it has more chances to succeed… Only time will tell us… Anyway, this is good and important theory and you better to keep it in mind. P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon. Note: FPA ranks are earned in the battles against scam, not in the classroom.