Monday, October 23, 2006

Monday, October 23, 2006

The Now:

Well Friday was a pretty dull day in the markets since there were no major economic reports out. However, my chart analysis did follow through after today’s action because of the speculation that the Fed will raise rates, not cut them, sooner rather than later.

The big “I” word, inflation, has been the topic of discussion lately and it seems the Fed, along with a bunch of economists are still worried about it. In other words, while many traders were expecting the rates to decrease after this pause, the focus has shifted to the possibility that the Fed will actually raise rates due to inflationary worries.

So what does this mean for the dollar? Simple—Open up your charts for today and notice the dollar rally that occurred. Higher rates= dollar strength. The rates will hold steady for now, but what traders are trying to find out is the Fed’s next step. If it appears that inflation is high and rates need to increase, then so will the dollar.

Weekly Bias:

My bias is still the same as the past 2 weeks even though the dollar lost some ground last week. One thing I am noticing though is that the dollar rally is getting very weak. In fact on some of my other pairs that I watch, my Bias-O-Meter is giving me a dollar negative bias for the week. This leads me to believe that we might start seeing dollar negative weeks soon unless economic factors (US reports, Fed, etc.) can provide enough support for the dollar.



Coming Up:

Big Pippin’s Dentist Appointment
8:30 am ET; 12:30 GMT
Previous= $$$; Forecast= $$$$$$
I have to go in to my dentist dude and get some new grills for my choppers. I’m going platinum this time because gold is out. The previous number was $bling, and the forecast for tomorrow’s appointment is $ a lot more bling. Afterwards I might swing by my auto shop and get some new rims for my ride.

Seriously, there’s not really any note-worthy news reports coming out. I think trading will be dead tomorrow as traders will most likely be waiting for the interest rate statement on Wednesday.

Chart Analysis:


After today’s dollar rally, I see 2 possibilities. The price is currently at 2550. On the 4 hr. chart stochastics is showing oversold conditions and the daily chart stochastics is heading up and is not showing overbought yet. This pair could bounce off of 2550 and head back up to 2600 or we might see it test that strong support at 2500 before bouncing back up. Unless of course the Fed makes some crazy statement that they will definitely raise rates which would probably put the market in a frenzy and push the dollar below 2500. But that’s just my imagination running wild again.


After breaking through it’s 200 SMA on the 4hr. chart, the Cable has moved back down and is once again testing support at around 8700 which is where both the 50 and 100 SMA on the 4hr. chart are. Stochastics on both the 4hr. and daily chart show that the Pound will make a rally and I think the safest target is around 8770, which is where the 200 SMA is currently at on the 4hr. chart. The more aggressive target would be at 8800.


Ahhh a good ol’ hidden divergence on the 4hr chart. Notice that as the Swissy made lower highs, the stochastics made higher highs. This is a good technical indication that the price will move back down. My dilemma here is that on the daily chart, today’s candle formed a huge green blob. Usually whenever I see a huge green or red candle, it’s usually followed by a continuation of that trend. So you can see that I’m torn right now. The safest and least risky play on this pair would be to short the pair at 2700 with a stop at 2750 and a target at 2600.


I have no clue what the Yen is going to do right now. The one thing I do know is that between the 50 and 00 levels, the price is drawn to them like magnets. Right now the pair is hanging around 119.29. The only safe trade idea that I see is if the price breaks 119.50. You could go long somewhere around 119.60 and target 120.00. Just keep a tight stop since your potential profit is only 40 pips.


Fundamentally, the dollar looks poised for another rally now that inflation has everyone shakin in their pants. Wednesday is the big interest rate statement and it’s most likely that rates will be held the same. On that same day, Existing Home Sales comes out so that could cause a dollar sell off if the real estate woes continue. Overall, it should be an exciting week so be ready!

Happy trading everyone!


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