Monday, October 30, 2006

Monday, October 30, 2006

The Now:

The dollar made up some ground after last week’s losses, but it wasn’t anything significant. Although personal spending came out lower than forecasted, personal income increased. Some economists are saying the reason that personal spending still decreased even with the increase in personal income is because of lower energy prices.

Personal spending accounts for 2/3 of the GDP which last week showed disappointing numbers.
Richmond Fed President, Jeff Lacker also said that inflation outlook is “discomforting” which means that he is still supporting a rate increase. Keep in mind that Mr. Lacker has been preaching higher rates for a while now so although he speaks very hawkishly, it will take more than just him to cause any significant gains for the dollar.

Weekly Bias-O-Meter

Right now my Bias-O-Meter still shows favor towards the dollar and if momentum shifts in it’s favor, we could see some good trades this week.



Coming Up:

Japan Interest Rate Statement
1:00 am ET; 5:00 GMT
Previous= .25%; Forecast= .25%
The consensus is that Japan will keep rates the same but look for statements that show any signs of inflation worries.

US Employment Costs
9:30 am ET; 13:30 GMT
Previous= 0.9%; Forecast= 0.9%
This is the broadest measure of labor costs. I don’t think this will move the market too much especially with the other US news coming out today.

US Consumer Confidence
11:00 am ET; 15:00 GMT
Previous= 104.5; Forecast= 108.0
With the weak personal spending report, this report will be important to gauge how consumers feel about the economy. Remember, consumer spending has been keeping the economy floating so a weak number will be bad for the dollar.

Chicago PMI
11:00 am ET; 15:00 GMT
Previous= 62.1; Forecast= 58
Once again, look for any major surprises (negative or positive) in order for there to be an effect on the dollar.

*Overall, what we want to look for is if there is an agreement with the US reports, whether it’s positive or negative. If all 3 reports line up, then we could see a nice move in all the dollar paired currencies.

Chart Analysis:


Our trade has now hit our initial target of 2700. If you are still in you might want to move your stop to breakeven. 2650 looks like it will be a good 2nd target because the 50 and 100 SMA are both in that area so it should make a decent support level. Our hidden bearish divergence is now fully formed so it looks like we’ll see another drop in the Euro.


We’re seeing a small regular bearish divergence on the 4hr. chart. This isn’t a strong divergence, but it does give indications that the trend is getting weak. Notice how the price made higher highs while the stochastics made lower highs. This upward trend looks exhausted and since 9050 is a long term resistance level look for this pair to drop. The question is where will it drop to? I don’t see any strong support levels so my only guess is that the pair will drop to 9000 and possibly down to 8950.


On the Swissy I see a bullish hidden divergence on the daily chart. This makes sense because the Swissy is highly correlated to the EUR/USD. Notice that the pair made higher lows but on the stochastics it made lower lows. With the price currently hovering around the 61% Fib level, this gives me good indication that this pair will be headed up soon.

Trade Idea:

Buy at 2450. Stop Loss= 2400; 1st Target= 2500; 2nd target= 2550


I’m still not sure about the Yen right now as the technicals aren’t really giving me much to work with. My first guess is that the pair will bounce up given the extended period of oversold indications on the Stochastics of the 4hr chart. The daily chart stochastics is also in oversold territory now so a move back up to 118.00 looks like a good possibility.


Technicals are showing a short term reversal dollar rally. However, once again it will be the fundamentals that will ultimately dictate where the market is headed. Have a great trading week everyone!



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