Wednesday, October 18, 2006

Wednesday, October 18, 2006

The Now:

The story for today was the Housing Starts report. Yesterday I talked about how the market showed signs of a short term dollar rally. Given the surprising increase in Housing Starts, the dollar was given some fundamental juice to spark some gains across the 4 majors.

The previous Housing Starts number was $1.67M. I noted yesterday that if today’s report came in at a higher number, we would see the dollar rally. Given that the forecast was at $1.64M and the actual number was $1.77M, the market reacted and pulled the dollar higher.

The CPI came in lower than expected at -0.5%. This shows the effect of the falling oil prices. Core CPI which excludes Food and Energy came in right at its forecast at 0.2%.

The BOE minutes sounded very hawkish. With all the positive UK data that has been coming out lately, I think there is a good chance we will see a rate hike in November.

Coming Up:

UK Retail Sales
4:30 am ET; 8:30 GMT
Forecast= 0.3%; Previous= 0.3%
A higher number than 0.3% should cause a short term rally for the Cable. It’s looking more like the BOE will raise rates in November so a good number would provide support for the Pound.

Jobless Claims
8:30 am ET; 12:30 GMT
Forecast= 310,000; Previous= 308,000
I don’t think this report will do too much to the market. Just watch for any major surprises.

Philly Fed Index
12:00 pm ET; 16:00 GMT
Forecast= 7.0; Previous= -0.4
This was a real market mover last time when the Index came in much lower than expected. Anything greater than 7.0 should cause a nice short term dollar surge.

Chart Analysis:


Wow, I usually have a pretty good sense of the market, but I was spot on my analysis yesterday (not to toot my own horn!). We did end up seeing a dollar rally all the way down to 2500 followed by another bounce back up. 2500 has proven to be a very strong support level. At this point I don’t know where this pair is going. I see the short term range as 2500-2560 (2560 being where the 50 SMA is on the 4hr. chart). If there is a break of the 2560 level, there’s a good chance the Euro will get to 2600, and if the 2500 level gets broken (not just a spike), look for the Euro to drop to at least 2450 if not lower. However, with no major economic catalysts tomorrow, I doubt we’ll see any move that big.


The Cable also appears to be stuck in a range. In this case it’s between 8650-8720 (the 100 and 50 SMA on the 4hr. chart). Currently, stochastics is heading down and isn’t in the oversold territory yet. If the Cable can break 8650 (it’s 50 SMA) then I think it will get down to 8600.


I have no idea where this pair is going. After bouncing off of its 50 SMA on the 4hr. chart, the price has stalled right around 2700. Stochastics is heading up but it’s still not in overbought territory. I think this pair will hit 2750 but I’m not sure if it will bounce down to it’s 50 SMA again before moving up.


Like the Cable, the Yen is stuck in a range between its 50 and 100 SMA on the 4hr. chart. If the Yen can break 119.00 (its 50 SMA) we may see a move to 119.50. On the other hand, if the Yen breaks below 118.50 (its 100 SMA) then we’ll probably see a move down to 118.00.

After 2 days of the dollar getting hammered, followed today’s mini dollar surge/rebound, the market seems to be at a standstill. Everything looks neutral right now and it’s hard to see where the majors will go next. With no extremely major economic events tomorrow, I don’t think we’ll see heavy movements to decide a direction. For now I’m waiting for a clearer picture.

Happy trading everyone!


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