Tuesday, October 17, 2006

Tuesday, October 17, 2006

The Now:

Well it was an exciting day today in the Forex as it was full of economic activity. The dollar lost some ground in the 4 majors and we saw some support and resistance levels broken. Quite a few news reports came out with surprises but it didn’t really seem to play too much of a role in today’s movement.

The Yen saw a nice gain after Omi, the Japanese Finance Minister said that he would welcome Russia’s decision to increase Yen exposure in their reserves. This fueled a Yen surge and it broke through its support at 119.00 and went as low as 118.50.

The TIC data came in at a whopping $116 bn compared to July’s $33 bn. While you would think this would cause the dollar to surge again, you have to question the discrepancy between the two months. Roughly $72 bn is needed per month to finance the US trade deficit and if you take the average between July and August’s numbers, you would get $74 bn which is just barely enough to cover our debt. This was just another one of those “dig a little deeper” reports where you had to analyze more than just the report number to get the big picture. Needless to say, this did not cause the dollar to make a rally.

Other causes for the dollar’s inability to regain strength?— PPI came in at -1.3% compared to the forecasted 0.1% and the Industrial Production report came out at a surprising -0.6% compared forecast of 0.0%.

Technically speaking, the dollar showed all signs of weakening. The charts yesterday showed that a reversal was likely to happen soon. With today’s weak US reports, there was nothing to stop the dollar’s tumble and now it’s time to look at whether or not another dollar rally is in the forecast.


Coming Up:

BOE Minutes
4:30 am ET; 8:30 GMT
Watch for any MPC votes for higher interest rates. The way UK data has been coming out lately it seems like a rate hike for November could be a good possibility.

US Consumer Prices- CPI (Headline/Core)
8:30 am ET; 12:30 GMT
Headline Forecast= -0.3%; Previous= 0.2%
Core Forecast= 0.2%; Previous= 0.2%
This CPI report will factor in the effect of falling oil prices. Be sure to watch for any surprises, especially in the Core CPI.

US Housing Starts
8:30 am ET; 12:30 GMT
Forecast= $1.64M; Previous= $1.67M
Real estate has been cooling off, so a further drop in housing starts will hurt the dollar. If the figure happens to come in higher than the previous number at $1.67, then watch for a good dollar surge, especially if the Core CPI is on target or slightly higher than forecasted.


Chart Analysis:

EUR/USD












Yesterday I said that the Euro would rally to around 2580 because that’s where the 50 SMA on the 4hr chart was around. Since then, the action brought the 50 SMA lower and the price stalled out around 2560. If you made a play on this, you might want to consider exiting since it failed to break this resistance. From here, it looks like the Euro will make a short term drop back down to around 2500. After that, we should see another bounce up. However, if US news comes out strong tomorrow and the market breaks 2500, look for this pair to drop to at least 2450. I think this is highly unlikely since 2500 is a strong support level but in case it does, just be ready.


GBP/USD












This pair finally made a clean break out of the 8500-8600 range. Yesterday I said that if the Cable broke 8650 that it would make a move to 8700. Well the Cable did break 8650 and surged as high as 8734. At this point it has stalled at the 100 SMA on the 4 hr. chart and is showing overbought. The pair is currently at 8700 and looks to be headed towards 8650.


USD/CHF












The Swissy simultaneously broke through its lower trend channel line and 2700. Right now it’s testing support at 2650. It looks like a short term bounce could happen. I see this pair going back to 2700.


USD/JPY












The Yen is in a sticky situation right now. After breaking through 119.00 and its 50 SMA it’s stuck between 118.50 and 119.00. I’m not sure what this pair is going to do so I’m not even going to try to guess. At this point I could flip a coin and just pick a side because technically speaking, this pair looks like it could go either way right now.



By looking at the charts, it looks as if the dollar is poised for a short term rally tomorrow. If the US reports are positive then this will solidify my thinking and may even cause the dollar to push further. However, regardless of the news I still think we will see at least a little dollar rush as there will probably be some profit taking. What happens after that is still a mystery to me.

Happy trading everyone!

-BP

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