Tuesday, October 24, 2006

Tuesday, October 24, 2006

The Now:

The markets moved in accordance with the technicals today since there were no major economic catalaysts. The best movement was in the Swissy where I said yesterday in the chart analysis that there was a nice hidden divergence. Like magic, after hitting 2700, the Swissy dropped back down to as low as 2641. Now would be a good time to lock in some profit since it has bounced off its 50 SMA on the 4hr. chart.

There isn’t much to talk about since the real action probably won’t begin until tomorrow. However, I did read something pretty interesting that I’d like to share:

“One of the key reasons for Fed’s recent hawkishness has been record level of Dow Jones Industrial Average which reached a high of 12,116 yesterday. Typically the Fed will not loosen monetary policy until US equity markets begin to show weakness. Yet the rise in US stock market has been driven more by prospects of a benign interest rate environment rather than underlying fundamental growth. (Note the latest warning from CAT and Ford’s massive Q3 losses.) Therefore, any strong indication by the Fed that it may resume rate hikes is likely to trigger a sell off in equities which ironically enough may force the Fed to ease off. Thus trapped between a rock and hard place we doubt the US monetary officials will do anything but remain still for the time being. “

Read the full article:

Coming Up:

Germany IFO Index
4:00 am ET; 8:00 GMT
Previous= 104.9; Forecast= 104.5
I don’t think this will be a big mover but any number lower than 103 could cause a short term Euro rally.

US Existing Home Sales
10:00 am ET; 14:00 GMT
Previous= 6.30M; Forecast= 6.25M
This report will be watched closely since real estate has been declining lately. A strong number (7.5-8.0M) should cause the dollar to soar. A weak number like 5M will most likely cause a dollar sell off, especially if the Germany IFO Index was strong.

US Interest Rate Statement

2:15 pm EST; 18:15 GMT
Previous= 5.25%; Forecast 5.25%
The overwhelming consensus is that the Fed is going to keep interest rates the same so if for some reason the Fed changes rates, expect a huge move in the dollar. The statement will also be watched closely for inflation and the pace of growth for the US economy.

Chart Analysis:

With the interest rate statement coming out tomorrow, I’m not too sure how well these prices will follow the technical indicators. Be cautious when trading tomorrow


The Euro is right around 2550 and technically this pair looks like it will get to 2600 sometime tomorrow. Remember, 2500 is a key support so a break of that level will probably cause a move to at least 2450. If US fundamentals are strong tomorrow we might see a spike below 2500.


I said yesterday that the technicals showed signs for a Cable rally today, and that’s exactly what happened. My safe target was the 200 SMA on the 4 hr. chart and that’s about as far as the Cable got. If you took that trade, it’s probably best to exit now. 8700-8760 will most likely be the range until the news comes out tomorrow.


The hidden divergence once again proved to be an exceptional trading tool as my trade followed my analysis perfectly. Yesterday I said to short at 2700 and target 2600. Well even though the Swissy didn’t get down that low it got as low as 2641. If you are in this trade it’s best to lock in some profit, close your trade, or move your stop to breakeven as the price is now resting on the support of the 50 SMA on the 4hr. chart.


The Yen looks like it will have good support at 119.00 since it’s a 00 level and it’s also where the 50 SMA on the 4hr chart is lining up at. Stochastics on the 4hr shows that the Yen will probably continue to drop for a little while longer. The news will once again be the deciding factor on where this pair goes tomorrow. Technically I can’t really find a clear direction.


The dollar lost some of its gains today but tomorrow’s news should cause some big movements. Be very careful if you trade tomorrow as we’ll probably be seeing plenty of spikes. I should have a clearer technical picture after the interest rate statement.

Happy trading everyone!


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