Monday, November 13, 2006

The dollar made a short term rally today and my chart analysis was dead on target. Am I a genius or a magical psychic? Hmmm...I barely broke 1000 on my SATs and I picked the Tigers to win the World Series so that's a definite NO. With a slow economic day today, the markets pretty much just followed the charts to a tee. This usually happens when there aren't too many important economic reports out. However, I do believe this dollar rally we saw today was partly caused by traders correcting their knee-jerk reaction to China's statements regarding diversifying their reserves.

Last week when Zhou announced that they had a clear plan to diversify their reserves, traders rushed out to sell their dollars as they figured this would be the catalyst for a big dollar sell-off. However, I think traders felt some regret about their decisions when they calmed down and went back to Zhou's statement on Friday in which he stated that he was not planning to sell US dollars in order to diversify. Ooops!

On the technical front, all 4 majors hit my projected targets (I know I know, I keep tooting my own horn). With the nice dollar rally today, we'll have to see if the dollar can maintain it's speed or if it will fizzle out once again and cause yet another retracement.

Weekly Bias-O-Meter:

For the 2nd week in a row now I am getting dollar-negative indications. This could be the start of a longer term dollar sell-off. Be ready for it!

EUR/USD; GBP/USD= Bullish
USD/CHF; USD/JPY= Bearish


Coming Up:

UK CPI
4:30 am ET; 9:30 GMT
Previous= .1%; Forecast= .2%

German ZEW Sentiment
5:00 am ET; 10:00 GMT
Previous= -27.4; Forecast= -30.0
The Zew has been a big mover the last couple of months so look for this one to move the market if there are any surprises.

US PPI
8:30 am ET; 13:30 GMT
Previous= -1.3%; Forecast= -0.3%
This report will be important because it measures inflation pressures felt by manufacturers. Inflation has been the bigger worry for the Fed (as opposed to the slower US economy) so this report will be watched closely.

US Retail Sales (all & excluding autos)
8:30 am ET; 13:30 GMT
Previous= -.4%; Forecast= -.4%
Excl. Autos Previous= -.5%; Forecast= -.1%


Chart Analysis:

EUR/USD












The 50 SMA on the 4hr chart is approaching 2800 which makes it a decent support level. With stochastics also reading oversold, a short term move to 2850 is possible although the stochastics on the daily chart still shows plenty of selling power. If the Euro breaks 2780, look for it to head towards its 100 SMA at around 2750ish.


GBP/USD












The Cable once again spiked above 9100 and got as high as 9150, but again it failed to stay above there. 9100 has proven to be a very good resistance area up to this point. The Cable has dropped like a rock to 9000 and the 4hr stochastics is reading oversold. I think there is a good chance the pair will get to at least 9050 but it may spike below 9000 at around 8970 (100 SMA) before bouncing up. The daily stochastics still shows plenty of selling power.


USD/CHF












The Swissy is currently testing resistance at 2450 (50 SMA) and 4hr stochastics is reading overbought. I think there is a very good chance that 2400 is the Swissy's next move.


USD/JPY












I'm seeing a small bearish hidden divergence on the 4hr chart. Notice how the pair has made lower highs while stochastics has made higher highs. With the pair bouncing off of its 200 SMA and stochastics reading overbought, I think there's a good chance this pair will hit 117.50.

Trade Idea:

Sell at market (118.12) OR at 118.00. Stop loss= 118.50; Target= 117.50


Conclusion:

There are plenty of economic reports to keep the markets busy tomorrow. I'm expecting a volatile day after having been without a solid fundamental catalyst for some time now. I think the markets are poised to move so be prepared for lots of thrills and excitements tomorrow!