Tuesday, August 22, 2006

It's a ZEW out there!

You wanted excitement? Well today was full of it :) Of course, every day is exciting in the Forex for me but today makes things interesting especially for the EUR/USD. The story of the day was the ZEW. The ZEW (an economic research center) report came out with much lower numbers than expected causing the Euro to lose ground against the Dollar today. In fact, the German ZEW came in at -5.6 which is the lowest since June 2001. The EU ZEW came in at 1.3 which was a much lower number than the forecast of 15. So what do these numbers mean? Well the fact that these numbers came in much lower than expected means that a majority of investors are pessimistic about their economy. Germany is the Euro-zone's biggest economy so with a weak number like todays, the possibility of the ECB raising their rates to 3.5% is looking less likely. Remember, interest rates play a big part in the direction of a country's currency. With the Fed most likely pausing their rate hikes, there is a good probability it will weaken the dollar. However, in the case of the EUR/USD, things aren't looking good for either currency right now. I've been talking about how the Euro would have to have a stronger sentiment in order for it to get past the 2900 level but right now it doesn't look like that will happen. So my theme is still the same. I expect to see more range bound movements between the 2900-2700 level, at least until the end of this week.

There were no Alba trades today as most of the movement occurred during the EU session. During my 8am-12pm EST timeframe, the market pretty much just hovered around the EU session low and then eventually nudged a little lower after 12pm. On a slightly longer time frame I am looking to buy the EUR/USD since I feel this is a dip and that the Euro will eventually head back up to 2900. I will probably scale in my entry since I don't know exactly where the bottom of the dip will be.

I was able to make some pips on the USD/JPY today. Remember, yesterday I talked about how there was major consolidation on the pair for the past 2 days and that I was expecting a breakout. I made a play on this and set a straddle order (an entry to buy and an entry to sell) above yesterday's high and low. Which ever one triggered, I would use my other entry order as my stop and reverse level. With these type of consolidation/breakout trades, I like to play both sides since usually it will move nicely in one direction or the other. I'm currently long with about a 40 pip profit right now but my target is at 117.71 so I have a long way to go. My target is basically double whatever my risk was on the trade. As I write this, the yen is currently at 116.58.

As for the other pairs, I still don't see any sexy setups. Everything looks flat right now and I'm not sure if anything will develop this week, but as always, we'll have to wait and see.

Tomorrow, we have Existing Home Sales and I think the market will make a play on this. It's expected that existing home sales has cooled down so unless there is a surprise, I think the Euro will gain a little strength tomorrow, but again, I don't think it will be anything drastic.

Another day, another dollar...or euro..or pound, yen, frank.... you get the idea!


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