Thursday, November 30, 2006

My suspicions were correct about the Dollar not being done taking its beating. After some profit taking yesterday, the Dollar once again resumed its meltdown as it plummeted agains the 4 majors today. The main reason for the drop? More bad economic releases for the US. The job market, which was once strong, is now starting to look like it may have some weakness as unemployment claims unexpectedly rose. To top it off, the Chicago PMI contracted below 50 which is the first time it has done that since April 2003.

In my opinion, a new trend is in place. For a few weeks now my weekly Bias-O-Meter has been screaming signs for a bearish dollar and it is finally starting to happen. I don't even think a positive US news report can save the Dollar anymore. I expect the Dollar to continue this down trend throughout Q1. We may see some profit taking and retracements but the general direction for the dollar for the next few months is DOWN.

I'll go as far to say that even Bernanke himself won't be able to bring the dollar back up. He can scream his inflation talk all he wants but I think the market is smart enough to see that from the economic data, the next move for the Fed is a rate cut. Interesting enough, he is speaking tomorrow so I can test my bold theory out. We could see some profit taking if he really harps on inflation but the overall medium term is going to be dollar bearish.

Coming Up:

Bernanke Speaks
9:00 am ET; 14:00 GMT

ISM Manufacturing Index
10:00 am ET; 15:00 GMT
Previous= 51.2; Forecast= 52


Chart Analysis:

EUR/USD











The technicals were once again overrun by the fundamental reports today. As usual, the technicals are still showing that the EUR/USD is overbought. 4hr stochastics overbought and the daily stochastics is overbought. The thing is, there isn't really a major resistance level until 3400ish. So while we may see some slight retracements, the Euro is showing poise to climb up to 3400 and maybe even 3500. As for the short term? I have no clue. Technicals say the pair will move down, but fundamentally, I don't see anything to stop the dollar from continuing its downfall.


GBP/USD











The Cable is at a ridiculously high level right now hovering around 9660. I scrolled back my chart to see when the last time the Cable was at this level and wow! I had to keep scrolling and scrolling and scrolling until I got to September of 1992! Can you believe that? The Cable has not been this high in 15 years! So what is to keep this pair from stopping? Well nothing that I can see except for the fact that this is a very extreme level and I'm just curious to see if the Cable can hold at such a high rate. Technicals are showing signs for a retracement (figures!) but with all the fundamental rucks the dollar has been facing, who knows how high this pair could go.


USD/CHF











The Swissy is at what I think is good support. It's currently hovering around 1950 which hasn't been reached since May. The pair could bounce up from there especially since the technicals support an upward move but the Euro and Cable don't show signs of slowing down so I'm not 100% confident about this. If it does bounce up, look for a move towards its 50 SMA on the 4hr chart.


USD/JPY











Out of all the majors, the Yen is the only one that moved according to its technicals. Like clockwork, the pair bounced down from its 4hr 50 SMA and moved to 115.50. Unlike the other pairs that saw huge gains against the dollar, the Yen stayed relatively quiet. The pair is showing signs for another move up and a suitable target looks to be the 4 hr 50 SMA again.


Conclusion:

This week has been another can of "whoop ass" for the dollar and with so many negative fundamental reports for the US, I don't see anything to stop the dollar from tumbling. As always, I could be wrong, but from what I see, I think think the dollar is in for some gloom throughout the rest of the year and Q1.