Thursday, August 24, 2006

Euro VS Dollar- Place your bets!

The battle rages on. Who will give the knock out punch that will send the opponent flat on its back? Who really knows? Apparently no one does right now. Todays market was a classic battle between the Euro and Dollar as neither one could be pushed towards a limit. During the EU session, the German Ifo came in at a slightly higher number than forecasted at 105 even though it was still a decline from the previous 105.6 from the last report. Because of such a low ZEW number that came out earlier, this tiny surprise seemed to be enough for some traders to place their bets on the Euro, shown by the jump in the EUR/USD. However, the Dollar fought back and even with the weak Durable goods and Housing data, it still managed to gain back its ground and settling to about the same level that it closed yesterday. The dollar finished around 1.2760 leaving traders right back where they started. So why is there such a struggle between these 2 currencies?

Again, the theme is still the same. It is still a toss up as to whether or not the Fed will raise rates again. It's also a toss up as to whether or not the ECB will raise rates again. No wonder everyone is confused! Right now, the interest rate futures show about a 47% chance that the Fed will raise their rates. We have some Fed governors saying that interest rate hikes might still be needed while others are saying that rates are good right now.

On the Euro side, traders were expecting 2 more rate hikes by the end of the year to 3.5% but with all the weak data coming out, this sentiment might be changing.

So where are you going to place your bets? I still expect to see range bound movement in this pair but I think the dollar will gain a little more ground before shooting up again. I still see 2700-2900 as being the range until we see a major fundamental change. This is confirmed by my Bollinger Bands (See chart below).

Recapping my current trade- I am still long the USD/JPY from 2 days ago and I will still hold onto it as I feel that the dollar still has some kick in it. Interesting enough, I entered this trade because it showed a lot of consolidation. After a brief breakout which put me in the trade we have seen another 2 days of tight consolidation. I am expecting another breakout soon. Hopefully it will be in my direction! :)

Alba had a nice little win today due to the fact that the dollar gained back all of the ground it loss during the EU session. At 11:00 am EST I saw one of my Alba signals and I entered 3 lots short at 2785 with a stop at 2803 and a target at 2774. My target was hit at 11:40 am and I closed 2 lots and moved my last lot's stop to breakeven. I trailed my stop to the high of the candle shown on the chart where I was eventually stopped out at 2766. It wasn't a big win but I pretty happy with any pips I can pull in this weird market right now.

Result: +22 +19 -9(spread)= +32 pips

Two things I will be watching tomorrow are the German CPI at 2am EST and Bernanke's speech at 10am EST. Traders are watching very closely for ANY sign of fundamental strength or weekness in either currency so be on the lookout for any extremes. Also pay close attention as to what Bernanke says in his speech. Everyone will be digging for clues on whether or not the Fed is going to raise rates so pay close attention.

Well that's it for me today. Hope you all had a great trading day and I'll see you tomorrow.


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