Friday, November 03, 2006

Friday, November 3, 2006

The Now:

The technicals had been showing signs for it, and today the fundamentals finally allowed the dollar reversal that I've been talking about for a week now to take place. On all 4 majors I have been ranting on and on about how there would be a dollar reversal because everything was either showing oversold or overbought along with divergences, hidden divergences, and strong support/resistance levels. In a market where things rarely happen the way you'd expect them to, this is kind of a nice moment for me. So I'd like to take a second and take a deep breath.....ahhhh! Man it feels good to be right! Sigh, ok back to reality...

Yesterday I said that if the NFP came in at 90k or lower we would see a dollar sell-off. Fortunately, the NFP came in at 92k which is still an increase from the pathetic 51k that was posted last month. As close as the NFP was watched today, the bigger story was the unemployment report. Unemployment fell to a 5 year low which means that the job market is still sizzling. This is the breath of fresh air the dollar has been waiting for, and it was just enough for traders to bring the dollar back up.

Remember, the housing market sucks right now. Consumer confidence is dwindling, even with lower energy prices, which leads to lower consumer spending, and consumer spending is what was keeping the economy afloat for the past few months now. The lower consumer spending means lower GDP which is what economists use as a benchmark for measuring the strength of an economy. With all of those factors, its no wonder why the dollar has been getting beat to a pulp. Today's reports showed that there is still one hope for the US economy, and that's the job market. If the labor market also begins to cool off, prepare for a longer term dollar sell-off. For now, I'm happy that both of my trades came up as winners.

My Swissy trade got all the way to my 2nd target at 1.2550 and I was able to grab 100 pips of profit per lot. My Cable trade reached my target at 1.9000 and I closed all my lots for a 70 pip profit per lot. It was a great way to end the trading week! Now it's back to the drawing board...

Chart Analysis:


After today's retracement, it's hard for me to determine a direction for the Euro at this point. Yes, our bearish hidden divergence is still in tact but now we are hovering around what could be good support levels. Price is right at 2700 which is also where the 100 SMA is on the daily chart and also where the 50 SMA is on the 4 hr chart. Stochastics on the daily still shows that the Euro is overbought so we could see more movement to the downside. The 4 hr. stochastics also shows some room for more selling as it is headed down but is not yet in oversold territory. Since we saw such a large drop in the Euro, my first instict tells me that the Euro will retrace back up slightly to 2730-2750. However, I think we will see a little more selling after that and I think the pair will go to at least 2680 or even 2650.


It looks like that 3 month resistance level at 9100 is still in tact as the Cable FINALLY bounced back down. Like the Euro, I think the Cable will retrace back up slightly and then head back down. I could see this pair getting to 8970 and even 8950. Stochastics on the daily chart still shows overbought and there is still some selling power on the stochastics on the 4hr chart. I chose 8970 as the initial target because that is where the 50 SMA is on the 4hr. chart.


Right now the Swissy is testing a good looking resistance level. Currently at 2533, the Swissy stopped at 2550 which was where the 200 SMA on the 4hr chart is, and is currently hovering just below the 200 SMA on the daily chart. However, our bullish hidden divergence is still in tact and if the Swissy can break 2550, then I have a good feeling it will go all the way up to 2600 or at least very close to it.


I see all sorts of resistance levels the Yen is facing right now. It's right around 118.00 + 200 SMA(4hr) + 50 SMA (daily) and right above it is the 100 SMA (4hr). Stochastics on the daily still shows plenty of room for more buying power, but the stochastics on the 4hr chart is starting to move into overbought territory. I'm all sorts of confused on this pair and won't even try to guess where this one is going. On second thought, I'll flip for it......just kidding!


It's been a great ending to a crazy trading week. Now it's back to the drawing board. After the nice dollar rally today, it will be interesting on how it will continue to move throughout next week. Can you feel the excitement?! Have a great weekend everyone.

Happy trading!


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