Tuesday, November 28, 2006

Tuesday, November 28, 2006

The dollar took another beating today as all the US fundamentals came out negative and confirmed the notion that the dollar's rise is over. Durable goods and Core Durable goods both came out lower than expected and housing prices fell for the 3rd straight month (Interestingly enough, existing home sales went up which means we have some discount buyers out there). Right now everything is looking gloomy for the dollar and there might not be much that can keep it from falling.

It's funny because usually when the Euro appreciates against the dollar very fast, the ECB officials will start to talk the Euro back down. This is not the case this time which can only add more doom and gloom for the mighty Greenback.

Even Triple B himself, (Bernanke for those of you who aren't up on the street jive), couldn't slow down the dollar slump with his statements today. He said in a statement that inflation risks are "primarily to the upside". The market doesn't seem to buy that anymore and even with that, they still don't believe the Fed will have to increase rates to cut down inflation. In fact, traders are placing their bets that the Fed is going to cut their rates in March of 2007. This Thanksgiving move could be the beginning of the dollar's demise. MWUAHAHAHAHA! (Sorry, an evil laugh just sounded good after I used the word "demise")

Kathy Lien over at FXCM said that the majors made a similar rally against the buck last Thanksgiving but that it corrected itself the Monday after the holiday. This time around however, the markets have actually gone with the flow which to me, signals that traders are actually thinking the same way for a change.

Coming Up:


8:30 am ET; 13:30 GMT
Previous= 1.6%; Forecast= 1.8%

US New Home Sales
10:00 am ET; 15:00 GMT
Previous= 1.08M; Forecast= 1.02M

US Beige Book
2:00 pm ET; 19:00 GMT
This could be significant because it will give us a look at how the different Fed branches view the US economy right now.

Chart Analysis:


With another Euro rally today, our regular bearish divergence I saw yesterday has now been voided because stochastics is now higher than it was at the previous swing high. However, the 4hr chart is now forming a regular bearish divergence which still leads me to believe that the pair could head down. This has been the longest Euro rally against the dollar in a long time so I'm thinking this pair is bound to retrace but it will all depend on the economic data coming out tomorrow. What I want to wait for now is the 4hr stochastics to start reversing down. If I see this then I will start to look for a short entry point. Right now however, the direction is still blurry until the fundamentals are released tomorrow.


There is still a slight hint of a regular bearish divergence on the daily chart of the Cable. The Cable has not reached 9500 since December 15, 2004! This is an extremely high level right now for the pair and I'm not sure if it can sustain it. The technicals are showing signs for a reversal but again, it will depend on the fundamentals tomorrow. It's a very tricky time right now because we need to find out if there is enough fundamental juice to continue to fuel this rally. Tomorrow should give us a better picture.


The Swissy is still holding support at 2000. Unlike the Euro and Cable, the Swissy didn't gain any new ground against the dollar. The next move will be dependent on tomorrows news reports. Today was pretty much a range day for this pair.


The Yen is still holding support at its 200 SMA on the daily chart. Today's candle was a spinning top and could be a sign of a reversal. Daily stochastics is reading oversold so there are good technical reasons to believe that this pair will head up in the near future.


Tomorrow's fundamentals will play an important role in the dollar's fate tomorrow. We've seen the dollar take quite a beating these past few days and now the tricky part is deciding whether not the market will continue the trend or correct itself. Be very careful if you are trading at this point. I know I will be!

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