Monday, October 9, 2006

The Now:

The USD/JPY has been the spotlight pair in the Forex at the moment because of all the nuclear testing going on in North Korea. They sure do have a thing for nukes don’t they? The talk of the town is that traders will most likely sell off some Yen and buy up some Dollars but long term effects are still uncertain.

But what does North Korea have to do with Japan?

It’s true that Japan is a totally different country, but geographically they are close by. Just imagine your next door neighbor training his pit bull to attack humans in his back yard so that he can use Fido as his personal weapon. Now even though it really has nothing to do with you, I’m sure your friends might be a little more hesitant to bring their young kids (or even themselves!) over to your house the next time you have a cookout. The point is that there is an added risk. Traders see this nuke testing in North Korea as a possible risk to holding Japanese Yen in case something were to happen to Japan so the result is that the Yen will lose ground to a more stable currency like the Dollar.


Coming Up:

GBP Trade Balance
4:30 am ET; 8:30 am GMT
Forecast: -6.2 b
I don’t think this will move the market unless there is a much higher or lower number than the -6.2 b forecasted.


ECB Comments
11:00 am ET; 3:00 pm GMT
Trichet is expected to speak at this one. Watch for him to confirm the ECB’s plan of raising rates. Although he was hawkish the last time he spoke, a confirmation will support the Euro. I don’t think he used the words “strong vigilance” in his last speech and that is trademark phrase, so if he says it tomorrow, not only should it help the Euro, but it will also be entertaining :)


Weekly Bias- This is how I feel about the 4 majors for the week:

EUR/USD; GBP/USD





USD/JPY; USD/CHF




How did I come up with my weekly bias?


Chart Analysis:

EUR/USD














I can see this chart possibly getting down to 2500. It’s been a freefall since the Euro dropped past its 50 and 100 SMA and 2500 is where the 200 SMA is currently at. This looks to be the next big support area. Stochastics also shows that the price is not completely oversold yet so I wouldn’t be surprised to see a little more selling power.














There’s a nice downward channel on the 4hr. chart. You can see that the price is right at 2600. Stochastics shows oversold, so we might see a slight retracement to around 2650 or so, but I think this pair will at least hit 2550 and possibly go down as low as 2500. If the price doesn’t retrace yet, the Euro might go down to 2550 before bouncing up.

Trade Idea:

Sell at 2620; Stop Loss= 2660; Target= 2550

OR

Buy at 2550; Stop Loss= 2520; Target= 2600


GBP/USD














The Cable is stalling at 8650 which is a key support area. Stochastics is showing oversold on both the daily and the 4hr. chart.

Trade Idea:

CONSERVATIVE:
Buy at 8650; Stop Loss= 8630; Target= 8700

OR

AGGRESSIVE:
Buy at market price; Stop Loss= 8630; Target=8700


USD/CHF














Not really sure about this one. You can see that the Swissy broke through its 200 SMA which tells me the price could continue to go up at least to 2650. However, both the daily and 4hr. chart are showing overbought so I’m not really sure what to do here. I’ll hold on this pair for now.


USD/JPY













The Yen is at very strong resistance right now. Stochastics is also showing extreme overbought conditions on both the 4hr. and daily chart.

Trade Idea:

Sell at 119.00; Stop Loss= 119.30; Target= 118.50

I’m a little uneasy about going short on this pair because of all the Nuke testing in North Korea but I still think this trade is viable because if anything, this will be the retracement if the dollar does shoot back up.