Monday, October 16, 2006

Monday, October 16, 2006

The Now:

Well I hope you all had a great weekend and are recharged for another week of exciting trading in the Forex. Last week was definitely an exciting time for the dollar and this week will be either the continuation or rejection of that greenback rally.

First thing to talk about today is the Russian Central Bank. Word on the street is that they will be adding the Yen to their foreign exchange reserves. As a result, the USD/JPY dropped back down to 119.00. It did not reach 120.00 like I thought it would before dropping back down. 119.00-120.00 will most likely be the range for this pair in the short term unless a major economic event occurs or a news report comes out with an unexpected surprise. I’ll talk more about it in the chart analysis.

The next thing to discuss is the issue of the UK house prices. The Rightmove house price index showed that UK house prices rose 2% in September which led to a short term rally for the Cable. There are more UK economic reports coming out later this week which are forecasted to be weak so I don’t expect this rally to last very long unless:

a) The dollar comes out with negative economic reports this week.

OR

b) The UK comes up with surprisingly positive reports.


Weekly Bias-O-Meter:

The bias-o-meter is pretty much the same as it was last week. Unless there is a major shift in momentum, I expect these biases to remain in tact throughout the week.

EUR/USD; GBP/USD




USD/CHF; USD/JPY




How did I come up with my weekly bias?




Coming Up:

There is a basket full of news reports coming out tomorrow. It will be very difficult to try and trade based on one report. Wait until after 9:15 am ET (1:15 GMT) before trying to pick a directional bias.


UK CPI
4:30am ET; 8:30 GMT
The consensus is 0.2% from the previous 0.4%. A higher number than expected could cause a short term rally for the Cable but the market will still be anticipating the US reports set to come out later in the day.

Germany ZEW Index
5:00 am ET; 9:00 GMT
This was a big mover last time so be prepared to see the Euro rally/decline if there is a big surprise from the forecast of -22.2. The previous number was -20

EU CPI
9:00 am ET; 9:00 GMT
The forecast for the Euro-zone CPI is 0.1% from the previous -0.1%. Use the data from this news report along with the ZEW index to gauge a directional bias for the Euro but remember that US data is still set to come up out later in the day.

US PPI (Headline)
8:30 am ET; 12:30 GMT
The previous number was -0.6% while the forecasted number is 0.1%. I’m sure this forecast takes into account the falling oil prices. Anything less than the forecast could cause a short term sell off for the dollar. If all the other reports came out around it’s forecast, look for this report to be the catalyst for the rest of the day’s movement.

TIC Data
9:00 am ET; 1:00 GMT
Previous number= $32.9bn; Forecast= $55bn
I don’t see this having too much of an effect on the dollar unless it comes in at a very low number. If for some reason the TIC data comes out at around $33bn (the previous number) or lower, then the dollar will lose some ground. However, I think this is highly unlikely and we’ll probably see a number around the forecast.

US Industrial Production
9:15 am ET; 1:15 GMT
Previous number= -0.1%; Forecast= 0.0%
Again, I don’t think this will have too much of an effect on the market unless there is a big surprise from the forecast.

US Capacity Use
9:15 am ET; 1:15 GMT
Previous number= 82.4%; Forecast= 82.3%
Like the US Industrial Production report and the TIC data, I don’t see this report doing too much to the dollar unless we see a significant surprise from the forecast.



Chart Analysis:

EUR/USD












I keep showing this daily chart because it highlights the significance of the 2500 level. You can see that the Euro is really testing this level right now. Stochastics is, and has been, showing oversold conditions for some time now. I think a rally to 2580 is likely to occur if the US news isn’t extremely positive. Why 2580? This is the average between 50 SMA on the 4hr chart and the 100 SMA on the 1hr chart so it looks like a good place for resistance.


GBP/USD












I still don’t know exactly what this pair is going to do. It’s been spiking past 8600 the past few days but always seems to close right back near 8600 or slightly lower. 8500-8600 still seems to be the range for this pair. If I see a break past 8650, I’m pretty confident it will go to 8700. You can see that the Cable bounced off of the 50 SMA right at 8650 so if the pair can break that, I think we’ll see a rally to 8700. Vice versa, if the pair breaks below 8550, I think we’ll see the pair move down to 8500 or close to it.


USD/CHF












There’s not really a clear picture on the Swissy right now. Sure we see it testing the support right at 2700 which also happens to be it’s lower trend channel line on the 4 hr. chart. However, stochastics on the daily chart are showing extreme overbought conditions with a cross down which looks like a sign that we are going to see more retracement. Right now it’s a toss up. The support could hold where it is at and bounce back up to around 2750, or the pair could continue retracing to 2650 where the 50 SMA is at on the 4hr. chart.


USD/JPY













Just like the Swissy, the Yen is in the same predicament. On the daily chart, it is showing extreme overbought conditions and appears to be headed down. However, it is testing the 119.00 level which also happens to be where the 50 SMA is on the 4hr. chart as well as where the 100 SMA is on the 1hr. chart. In addition, the stochastics on the 4 hr. chart is showing oversold. Through technical analysis alone, this pair really looks like it will bounce to 119.50. Fundamentally however, if the US reports tomorrow don’t come in so hot, we might see the support broken. To add to the fundamental dilemma, last Friday, BOJ governor Fukui said that the bank will consider a rate hike by the end of the year. If US reports don’t come in with good numbers, the Yen might recover some ground.


The story is in motion. How will it unfold? Will the Greenback continue to rise in glory or was it just a fluke? Can you feel the excitement? Stay tuned because you don’t want to miss any of this nail-biting action! Have a great trading week everyone!

-BP

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