Tuesday, October 10, 2006

Tuesday, October 10, 2006

The Now:

Ok, so I was pretty much wrong on my chart analysis yesterday. My weekly bias is right on track as the both the Euro and Pound are dropping while the Swissy and Yen have been skyrocketing. I just thought we would see a little retracement before seeing the dollar continue its run, but it looks like the move is still going.

Why is the dollar gaining ground? I’ve been reading around and found 2 driving factors that seem to be the reason for the dollar surge.

The first is that traders are pulling back their expectations that the Fed will cut rates in the next couple of months. The Fed has been surprisingly hawkish recently and its becoming more apparent that rates will be held constant in the near future. Instead, traders are looking to see the Fed cut rates sometime near the end of Q2. This means that the US economy is not slowing down as fast as people thought.

This leads to the 2nd point—a stronger US economy than what traders expected. The Bureau of Labor Statistics released a report showing that there were more jobs created than what the original reports were showing. This means that the job market is still going pretty strong.

“The Bureau of Labor Statistics (BLS) estimated that businesses created 128,000 new jobs in August, a relatively weak figure. Now, with more information, it estimates that employers added 188,000 new jobs that month—a fifty percent upwards revision. BLS also undercounted the number of new jobs created between March 2005 and 2006 by 810,000.”

Read the full article at: http://www.heritage.org/Research/Economy/wm1233.cfm

In addition, the housing market drop is expected to slow down since the drop in construction in prices. Since the housing slump has been the driving force in the dollar sell off, this should give the dollar some support.

Coming Up:

FOMC Minutes
2:00 pm EST; 18:00 GMT
The important thing to look for here are statements indicating that inflation is still a concern. Anything that suggesting that rates will be held steady will give good support for the dollar.

Chart Analysis:


Yesterday I said I could see the Euro get to 2500. After yesterday’s dollar surge, it looks like that may happen. 2500 looks like a good place to buy because it’s where the 200 SMA is, which makes it a viable support area. There’s been a lot of selling pressure on the Euro so I think we’ll see a retracement soon.

Trade Idea:
Buy at 2500; Stop Loss= 2455; Target= 2550


Right now it looks like nothing could stop the Cable from falling, except for the fact that it has been showing oversold conditions on a 4 hr. chart for 2 days now. Other than that, I don’t see too many barriers to stop it from falling. I’m going to hold on this pair for now.


Woowee this pair is soaring! After cutting through its daily 200 SMA, this pair has kept going all the way up to 2700. Now it’s stalling. Retrace or keep moving higher? That is the question.


Just like the Swissy, the Yen has broken through it’s major resistance level at 119.00 like it was little twig and looks like it is on it’s way to 120.00. This pair seems to have a knack for 50’s and 00’s so I’m going to make a low risk play on buying it and targeting 120.00.

Trade Idea:
AGGRESSIVE- Buy at market; Stop Loss= 119.20; Target=120.00


CONSERVATIVE- Buy at 119.50; Stop Loss= 119.20; Target= 120.00

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