Wednesday, November 8, 2006

It was a pretty dull day in the markets regarding fundamentals. Nothing too extreme has happened in the past 24 hours. However, the Democratic party did take control of the House of Representatives. Now this gives them the power to block government spending and reverse tax cuts. Like I talked about yesterday, this will create a power gridlock since one political party no longer controls both the House and Senate. When this happens, it becomes negative for the dollar because policies become harder to pass.

The Democrats have taken 5 of the 6 six seats that they needed in order to take control of the Senate, and the 6th seat is coming down to the Virginia results. Democrat Jim Webb leads current Senator George Allen by 1 percentage point. The recount will determine whether or not the Democrats will actually win the Senate. However, even if the Democrats do take the Senate, you still have a Republican president and a power gridlock will still be in effect.

In the technical analysis world --- After some retracements took place (mentioned in my chart analysis yesterday), the dollar moved right back around to where it was yesterday. My Euro, Cable, and Yen targets were all hit but after that, the pairs moved back to their original levels.


Coming Up:

BOE Interest Rate Statement
7:00 am ET; 12:00 GMT
Previous= 4.75%; Forecast= 5.00%
The BOE is expected to raise rates a quarter percentage point to 5.00%. This is bullish for the Cable and perhaps it may even give it the juice it needs to finally break 9100 after 3 months. Also look for statements for future rate hikes.

US Trade Balance
8:30 am ET; 1:30 GMT
Previous= -69.9; Forecast= -66.0
The trade balance is expected to narrow which could mean good news for the dollar. A number lower than -70 would be a big surprise and if that happens, expect the dollar to drop like a rock.


Chart Analysis:

EUR/USD











I said yesterday that my primary target for the Euro was 2750 and my secondary target was around 2725-2730. I'm going to stick with my secondary target because I still see a little more selling power. The 4hr stochastics isn't oversold yet and is still headed down. The daily stochastics shows plenty of selling room and I don't see any major support areas until 2730ish because that is where the 50 SMA is on the 4hr. chart.


GBP/USD











The Cable didn't quite get to 9000 but it did get as low as 9006 which is pretty darn close. After bouncing back up to 9050ish, I still see this pair heading back down toward 9000 as there is still signs of a little more selling power shown by the 4hr stochastics. 9000 looks like a good target because that is where the 50 SMA is on the 4hr chart.


USD/CHF











This pair is looking really ugly right now. On both the 4hr and daily chart, all 3 moving averages are consolidating and it really gives me no clues as to where this price is headed. I can see from the 4hr. Stochastics that an upward move looks possible. If the pair can break through its 50 SMA at around 2512, then I can see the Swissy getting to 2550 which is where the 100 and 200 SMA are on the 4hr chart.


USD/JPY











Well the Yen did reach 118.00 like I thought it would and since then it has bounced down slightly and is hovering around 117.83. I think the pair will move back up to 118.00 again and at best, I think it could go as high as 118.20 which is where both the 100 and 200 SMA are on the 4hr. chart.


Conclusion:
After a week of dull fundamental activity, tomorrow's BOE statement and US trade balance report should cause the market to stir. Look for a decent move tomorrow.

Happy trading!

BP