Thursday, October 26, 2006

Thursday, October 26, 2006

The Now:

The big story for today was of course….yup you guessed it--- New Home Sales. With all the attention the housing market has been getting, it’s no wonder that the New Home Sales report stole the show today.

Open up a dollar paired chart and the first thing you’ll see is the dollar getting creamed just like the Cardinals creamed the Tigers in game 3 of the World Series. Now find a news source and look at the numbers for the New Home Sales report. You’ll notice that new home sales actually surged to 5.3%, higher than what was forecasted. Now why on Earth would the dollar fall when new home sales actually went up?

Well let’s pause for a moment and think of why new home sales went up. By searching for the cause of the new home sales increase we can get the bigger picture on what’s actually going on.

New homes are a bargain! The main reason new home sales went up is because of the drop in new home prices. The oversupply of new homes is causing house prices to drop, thus people are buying these houses at a discount. When I say that house prices dropped, I don’t just mean they fell a little bit. No my friend, I’m talking about a big drop. In fact, new home prices haven’t dropped this big since 1970. September new home prices dropped 9.7% from a year ago! Talk about a bargain!

What this tells us is that the housing market is continuing to weaken, which adds to the fact that the US economy is slowing. And when the US economy is slowing, the dollar begins to fall. Voila! Mystery solved---ahem…at least for today!

Coming Up:

US GDP & US GDP Deflator (Core)
8:30 am ET; 12:30 GMT
Previous= 2.6% Forecast= 2.1%
Deflator (Core) Previous= 2.7%; Forecast=2.5%
This will be the big news event for the day. Markets will be watching these two reports very closely so be on your toes and watch for any surprises.

US Consumer Confidence
10:00 am EST; 14:00 GMT
Previous= 92.3 Forecast 92.4
This will most likely be overshadowed by the GDP report but you should still keep an eye on it.

Chart Analysis:


With the weak US fundamentals today, the Euro has broken through all of its moving average resistance levels on the 4hr chart. With the strong movement, the technicals are now indicating a reversal. Notice on the daily chart that we have reached the 100 SMA. This also happens to line up with 2700 so this should make a pretty good resistance level. Stochastics on both the 4hr. and daily chart are now in overbought territory (although the daily stochastics still shows a little more room for buying power) and we can see the makings of bearish hidden divergence. As far as technicals go, I see a good probability that the Euro will move back down to around 2650 (where the 200 SMA is on the 4hr chart).

Trade Idea:

Sell at 2750; Stop Loss= 2800; 1st Target= 2700; 2nd Target=2750


The Cable made a nice rally today and is currently at around 8900. Stochastics on the 4hr. and daily chart are both in and around the overbought territory so it looks like we may see a drop in the near future. I just don’t have enough technical information to come up with a specific trade.


The Swissy is testing support right now on the 50% Fib level on the daily chart. It has pierced through the 200 SMA and is now resting right above the 50 SMA. Stochastics on the daily still shows a little more room for some selling power, but a reversal could be coming shortly.


Well 119.00 was broken through and now it looks like there’s a good chance the Yen will hit 118.00. I’m not sure how far the Yen will fall before moving back up because Stochastics on the daily chart still shows a good amount of room before becoming oversold. 118.00 should be a good support level because it’s also where the 200 SMA is.

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