Monday, November 27, 2006

So there I was, stuffing my stomach with deep fried turkey, mac and cheese, succulent ham and all the other fixins and all the while the market was making huge moves. The last thing I said before I left was that I seriously doubted that the markets would move. Boy was I ever wrong! That just goes to show you that you should never completely "listen" to me. I mean sure, I am the best looking member of the FX-Men and many times it seems like I have superhuman abilities to foresee the market, but at the end of the day, I'm just a handsome analyst who makes a best guess decision on market movements based on what I see is going on around me. :)

Ok so what's the deal with the crazy move? Let's see....The French said business confidence was at its strongest levels in 5 years. Being that the French make up the 2nd largest economy for the Euro-Zone, this is pretty big. To add to the Euro fuel, German business confidence surprisingly jumped to a 15 year high! So can someone say interest rate hike? Apparently that's exactly what the few traders that traded over the holidays were saying as they sold off the dollar and drove the Euro and Pound to new highs.

Now before you go and join the crowd, consider this: Volume was very thin over the holidays and as a result there was no one to sell against the rising Euro and Cable. I think we'll see a correction during the course of this week. We are already starting to see some of the retracement and I expect that we'll see more counter movement throughout the week.

On the US front, shopping was crazy throughout this weekend. The word on the street is that consumer shopping has started off on a strong note and could be indicative of a good shopping season. This strong spending will cause a spike in Retail Sales and Consumer Spending especially since salaries have been growing. People have money in their pockets and they're not afraid to use it!

Weekly Bias-O-Meter:

My Bias-O-Meter is still showing a dollar negative trend. It's been like this for 4 straight weeks now.

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

Coming Up:

US Durable Goods
8:30 am ET; 13:30 GMT
Previous= .5%; Forecast= .4%

Consumer Confidence
10:00 am ET; 15:00 GMT
Previous= 105.4; Forecast= 106.4

Existing Home Sales
10:00 am ET; 15:00 GMT
Previous= 6.18M; Forecast= 6.20M


Chart Analysis:

EUR/USD












Whatever the Euro has been doing over the holidays has caused my oscillator to show extreme levels. As a result, I see REVERSAL opportunities. The 4hr stochastics has shown overbought since last Tuesday and the daily stochastics is also in overbought territory. I'm starting to see the formation of a regular bearish divergence on the daily chart so there's a good chance the next move is down. The trick now is to find a suitable entry point. I'm going to hold off until the fast stochastic line actually crosses down below the slow stochastic line.


GBP/USD












Like the Euro, the Cable is telling a similar story. 4 hr stochastics has been showing overbought since Monday of last week and we're now starting to see the formation of a regular hidden divergence on the daily chart. Again, the trick is finding a good entry point and I will also hold off on this one until the fast stochastic line crosses below the slower stochastic line.


USD/CHF












The Swissy has found support at 2000. The pair has been in oversold territory on the 4hr chart since last Tuesday and it looks like a reversal is a good possibility. Unlike the Euro and Cable which are showing divergences, the Swissy is not showing any kind of divergence but its daily stochastics is in oversold territory and looks to be heading back up.


USD/JPY












The Yen got as low as 115.50 and looks to have found support there. Currently it's right at 116.00 and seems to have found new support at the 200 SMA on the daily chart. The 4 hr stochastics has been moving up so it's hard to say whether or not the pair will continue to move up or if it will reverse back down. Things are kind of tricky right now since the holiday trading kind of made the market movements a little weird.


Conclusion:

Thanksgiving trading really threw a bone at the market as the low volume of traders forced the market in a lopsided direction. Now that the rest of the world is back in the market, it will be interesting to see what happens. My personal opinion is that last week's move will be corrected this week but if US data continues to show negative reports coupled with stronger Euro and GBP reports then the trend could continue.