Running in place

Lock and load! Finally some action! The dollar had one heck of a roller coaster ride today. Surprisingly enough, even after a much lower than expected Consumer Confidence number, the dollar made a quick surge. Why did this happen? If this was such a bad number for the dollar why did it still continue to rise? From what I've read, it seemed like traders still speculated on high inflation talk in the FOMC minutes which came out later in the day. There could be a bunch of things that caused the dollar to make a quick surge, but what I was most concerned about was hanging on for the ride. I was pretty convinced this dollar surge was just "noise" and that unless the FOMC minutes showed alot of inflation concerns, the dollar would still sink.

However, I could not deny such a strong move and with the help of the Alba system I took a breakout 20 minutes after the Consumer Confidence report. I went short 3 lots at 2779 with a stop at 2810 and a target at 2762. The 2750 mark was my real concern because I know that 50's are a key level in the Euro and I figured that might be the reversal point where the market would correct itself and actually do what the data suggests. Since my target was at 2762 I still felt that the Alba trade was still good. My target was hit on the next candle and I closed 2 lots and moved my last lot's stop to breakeven. I continued to trail my last lot to the high of the candle marked on the chart where I was eventually got stopped out at 2757. (See chart below)

Result: +34 +22 -9(spread)= +47 pips

Interest rate futures contracts are now showing about a 17% chance that the Fed will increase rates in September which means that it's probably not going to happen. However, contracts are still showing about a 43% chance that the Fed may raise rates one more time before the end of 2006. So again, although the dollar gained alot and then lost alot today, it is still right back where it was against the Euro. Don't completely count the dollar out yet. On the Euro side, futures traders are expecting the ECB to raise rates 2 more times by the end of the year.

There is a bunch of US data coming out throughout this week including, GDP, Personal Spending, a Bernanke speech, and Non Farm Payroll. If these reports all show dollar weakness, then I can see the dollar losing alot of ground. Some analysts are even saying that the Euro will get to 1.3200 by the end of the year.

Regarding my USD/JPY trade-- I finally exited my trade seeing how I can sense the dollar getting weaker. I was still able to manage a small profit and ended up getting about 50 pips per lot. My technicals are still showing a possibility that my target may get hit but fundamentally, I think the dollar has finally cooled a bit and will stay that way unless these upcoming news reports show some miracles.

Short term I'm feeling bearish on the dollar. Medium-Long term I am still undecided. I need more data to make a better decision.

For a complete reading of the FOMC minutes you can go to:
http://www.federalreserve.gov/fomc/minutes/20060808.htm

Happy trading everyone!

-BP

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