Friday, October 27, 2006

Friday, October 27, 2006

The Now:

So I opened up my internet browser and what headline do I see flashing across my page?

“Economy weakest in three years”

If that doesn’t spell bad news for the dollar, then I don’t know what does. Basically, it was another day of the dollar getting pummeled. GDP grew at 1.6% in the third quarter which was down from 2.6% the previous quarter. This is the weakest growth pace for the US in 3 years and since the GDP is basically the main tool for measuring the economy’s strength, the weak number had a huge impact on the dollar.

With the balanced Fed statement that was given on Wednesday, traders have been looking for a catalyst to help them to decide whether not they should hold onto their dollars. These past few negative reports have been giving them ammo to shoot the dollar down. Even with the positive Consumer Confidence report, the GDP’s weaker than expected numbers already gave traders enough reason for them to make up their minds to sell the buck.

However, all is not lost. Yesterday, I mentioned that I saw a bearish hidden divergence on the EUR/USD daily. I recommended a short at 2750 with a target an initial target at 2700. Right now the trade is active and it still looks like it has a good chance of winning.

Chart Analysis:


The trade recommendation from yesterday is currently active and still looks like it will head down so I would hold for now. Stochastics on the 4hr chart has been in the overbought territory for quite some time now so I think the dollar will make small rally on Monday.


Just like the EUR/USD, the Cable has been showing overbought on the 4hr. chart’s stochastics. The pair may rally back up to 9050 before moving back down, or the pair could just move down from where it’s at right now which is currently around 8965.


The Swissy has broken through a major support area and is now hovering around its 61% Fib level on the daily chart. Stochastics on the 4hr chart have been showing oversold for a while now so I expect a bounce to around 2530 sometime on Monday.


The Yen went a little crazy today as it spiked all the way down to 117.00. For now it looks like 117.00 will be its new support but with the price being around 117.50 right now it’s hard to pick a direction. But since all the majors show signs for a short term dollar rally, my gut tells me the pair will move back up to 118.00.


It’s been a tough week for the dollar with all the negative fundamentals that came out this week. Early next week should give us a slight retracement, but after that, fundamentals will once again dictate the direction of the Greenback. Have a great weekend everyone!



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