Thursday, October 19, 2006

Thursday, October 19, 2006

The Now:

It’s funny how when I say that it’s unlikely we’ll see a big move in the Forex, it just seems to soar like a rocket! I should’ve known that the Philly Fed Index was going to put the market in a frenzy again. Last month the index came in at -0.4 which was a big negative surprise and it caused the dollar to tumble. Well with the forecast for this months report at 7 and the release of the actual number at -0.7, the market pulled a de ja vu and sold off the dollar.

Not only did the index come at a much lower number than expected, it actually decreased from last month’s number. But really, this report is only solidifying what I’ve been saying for a while now. The US economy is not growing at its fast pace anymore. It’s still growing in certain areas such as consumer spending and at the same time it’s declining in other areas, such as the real estate market. And I don’t know how many times traders need to be reminded that the Fed is not going to increase rates NOR will they decrease them. For the next few months, the interest rates will hold steady.

The Leading Indicators Index came in at 0.1%. Although that was slightly lower than the forecasted 0.3% it still was an increase from the previous month which was set at -0.2%. What this is telling me is that the US economy is growing—but at a slow pace and that it will probably continue to move at this pace for the next few months. I still expect consumer spending to rise, especially with the holidays coming up so I think the dollar will still be able to hold some ground against the majors.

For the Alba lovers, there was an Alba breakout today at 9:40 am ET. Entry was at the close of the candle at 2588. The stop was at 2562 and the target was at 2604. The target was hit at 10:40 and I closed 2 lots and moved the last lot’s stop to the low of that candle which is where I eventually got stopped out at 2597.

Result: +32 +9 -9(spread)= +32 pips


Coming Up:

UK GDP
4:30 am ET; 8:30 GMT
Forecast= 0.6%; Previous= 0.7%
A growing GDP will help support the idea that the BOE will raise rates in November. A strong number should continue the Cable’s rally against the dollar.


Chart Analysis:

EUR/USD













Yesterday I said that a break of 2560 would lead to a move to 2600. Today’s poor Philly Fed Index report made that prediction come true. So now the Euro is past 2600 and has pierced through its upper trend channel line. 2670 is the next resistance level because it is where the 50 SMA is on the daily chart and also where the 100 SMA is on the 4hr chart. Stochastics on the 4hr chart is showing overbought right now but on the daily chart it is sloping upwards and still in middle ground. This leads me to believe that we’ll see a short term retracement, followed by another Euro rally to around 2670.


GBP/USD












The Cable made a nice rally today. Right now it’s testing resistance at around 8780. I think it will make another short term rally to 8800 overnight, but will fall back down to 8750. Stochastics is almost showing overbought on the 4hr. chart and with the 200 SMA at around 8780, the technicals are indicating another short term dollar rally.


USD/CHF












The Swissy made a huge gain against the dollar. Right now the pair is at a good support level. On the daily chart it is hovering right around its 38% retracement level as well as the 200 SMA. However, stochastics is still heading down and is not in oversold territory yet. I see 2 possibilities. The pair can continue its downtrend and if it breaks 2500, I can see it getting to at least 2470 and maybe even 2450. Or the pair can bounce off of support and rally to 2650.


USD/JPY












All signs on the Yen are showing that a dollar retracement is going to happen soon. Right now the pair has bounced off of 118.00. On the daily chart, notice how the lower trend channel line matches the 50 SMA, I think this will provide good support. On the 4hr. chart, the 200 SMA is hovering right around 117.80.

Trade Idea:

Aggressive: Buy at 117.80; Stop Loss= 117.20; Target= 118.50

OR

Conservative: Buy at 117.50; Stop Loss= 117.20; 1st Target= 118.00, 2nd Target= 118.50


Conclusion:

The dollar took a beating today. I’d like to say that dollar will make a strong rebound tomorrow but there aren’t any US reports that can give it some juice to move. But then again, I said this yesterday and look what happened, so just remember that anything’s possible.

Happy trading everyone!

-BP

1 comment:

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