Wednesday, August 23, 2006

Greenback making a Comeback?

Pretty boring day in the Forex if you ask me, but the dollar did manage to gain a little more ground on the Euro today. The Existing Home Sales report came out at 6.3 million which was slightly less than forecasted but it was pretty much expected that the housing market has cooled off. This is why the dollar wasn't really affected. When expectations are met, the market tends to keep its cool. It's the surprises that really makes the market wiggle. It's being said that dollar expectations are in place and there are no major catalysts to cause it to drop in the next week or so. So what could this mean? The dollar on the rise? For the short term the answer is probably yes. Like I've been saying, I think it could go to 2700 and in an extreme case as low as 2500 before the Euro bounces back up. On the EUR/USD daily chart (see below), notice how the upper and lower Bollinger band levels just so happen to be at around 2900 and 2700. This reinforces my belief that the price will most likely range between these levels until a major news event comes out to shake things up.

As it stands, interest rate futures are showing a 47% chance that the Fed will raise rates again so the speculation is still there. Things are not definite yet. In fact in the testimonies yesterday, Chicago Fed Bank Pres, Michael Moskow said that further interest rate increases may be needed if inflation remains stubbornly high. On the other hand, Atlanta Fed Bank Pres, Jack Guynn said that monetary policy was "properly calibrated". So you can see that there is still some speculation as to what the Fed is going to do. I think until there is a major news report that shows a clear sign that rate hikes are no longer needed, I think we will continue to see range bound movements.

My USD/JPY trade is still going on as my target is still set at 117.71. I know it's still far off but I think the dollar can get that high since I don't really see anything stopping the dollar in the near term (unless of course a major surprise somewhere). I will continue to hold my position until I see something important enough to re-consider my decision.

There were no Alba trades today as the Euro once again stayed within the EU session range. You can see from the chart below that the price pretty much bounced between the high and low and made no clean breaks from the range. I'll have to wait for a better time although I'm not sure if this week will give me any opportunities.

Tomorrow might be an interesting day as far as economic reports are concerned. We have German Ifo as well as US Durable Goods and US New Home Sales. Because of the low German ZEW number, I would expect to see a lower German Ifo number as well. Durable goods and New Home Sales are both expected to have lower numbers so I wouldn't expect much movement if they come in at the expected forecasts. If we see a low German Ifo number with a higher than expected number for Durable goods and/or New Home Sales, I think we'll see the dollar gain more ground on the Euro. I'll just have to wait and see.

Once again trading has been minimal but I'm starting to look real close for a good price to buy the Euro because I think it will eventually bounce back up again. I'll keep you posted.

Happy trading!

-BP

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