Thursday, October 12, 2006

Thursday, October 12, 2006

The Now:

After a pretty good dollar run, I think we are finally seeing the retracement we were all waiting for. The trade deficit widened to -69.9bn which is a record for the second month in a row. The consensus was about -66.5bn so this number was wider than expected. The word on the street is that although the trade balance has widened, the US is having no problems attracting foreign investors to fund this deficit. This means that this probably won’t have a long term affect on the dollar.

The Beige Book showed mixed results. Some regions said they experienced growth while others said that their growth had cooled. More specifically, many districts claimed that housing sales have cooled down shown by decreasing prices, rising inventories, and slower sales. On the other hand, consumer spending has been rising (with the exception of houses) in many districts.

The bottom line is that the US data right now is pretty much telling us that although the economy is not booming like it used to, it’s holding steady which indicates that rates will most likely stay put from now until early next year. Traders were placing bets that the Fed would cut rates in the near future but the recent reports and hawkish statements from the Fed have pretty much put that rumor to rest.

Start paying closer attention to the currencies paired against the dollar. Watch the ECB, BOE, and BOJ and see what they are doing and saying about their economy. I think this will be particularly important to pay attention to, especially now that the dollar picture is becoming a little clearer.

Coming Up:

BOJ Interest Rate Decision
1:00 am ET; 5:00 GMT
BOJ is expected to keep their rates the same. Of course if they don’t, the market will go crazy. Don’t bet on that happening though!

US Retail Sales (excluding Autos)
8:30 am ET; 12:30 GMT
Consumer spending has been growing lately and has been the backbone for the dollar support so I’m looking for a good Retail Sales number. The consensus is 0.0% from the previous 0.2% last month. Anything higher than the 0.0% would support the dollar and a number of 0.2% should cause a nice move.

Michigan Consumer Confidence
9:45 am ET; 13:45 GMT
This will be a good report to watch because it gauges the consumers’ confidence on our economy. The consensus is around 86.3 from the previous number of 85.4. If retail sales come out good and consumer confidence shows a high number, I think we’ll see another good day for the dollar since consumer confidence translates into more consumer spending and better retail sales numbers. Remember, consumer spending right now is one of the upsides to the US economy right now so this report will be pretty important

Chart Analysis:


As I suspected, the pair has bounced up to 2550. I think it will get up to 2600 and then bounce back down. Notice how the 50 SMA also lines up with 2600. This should make it a pretty nice resistance level. Look for this pair to bounce back down to 2570 or even 2750.


There was more range trading between the 8500-8600 levels. I still don’t have a clear direction for this, but signs are showing that this pair will probably head to 8650 before bouncing back down. Once again, the 50 SMA is in line with 8650 which makes it a good resistance point. The daily stochastics is in the oversold area and is showing a cross up which could be signs of a retracement. The 4hr. stochastics is still in neutral territory right now but its slope is moving upwards toward the oversold area. It looks like if the Cable does get to 8650, the stochastics will also show oversold which looks to be a good level to go short, since this will also be when the price hits the 50 SMA as resistance.


We are finally seeing this pair settle down after the dollar took this pair for a joyride! The same story goes for this pair as the Cable and Euro. The Swissy has broken out of its upward channel and I think it will head down to its 50 SMA which will probably be around the 2620-30 level.


1900 will be the next “make or break” level for the Yen. It’s a level that everyone will watch because it was a strong resistance level. It just so happens that the 50 SMA also is headed towards that level. I think the break or bounce at this level will determine the direction for at least the next day or so. Watch this level closely.

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