And Finally The Dollar Rallies!

EUR/USD

Finally the Euro drops! After ranting and raving for the past few weeks on the Euro dropout, the currency actually followed my predictions! So yea the pair only dropped a measly 100 pips since Sunday but at least its a start. Right now, 4hr stochastics are in oversold territory which indicates that there may be a pause in the dropping for now. However, daily stochastics are trending down and have finally started to get out of overbought territory which is a good sign. Look for the Euro to retrace up, but it should find resistance at 4200 and resume its dropout from there.

GBP/USD

Well the Cable dropped somewhat today but found good support at 2.0400. 4hr stochastics were trending down but crossed up before reaching oversold territory, while daily stochastics are starting to cross down in overbought territory. In the short term, it looks like the pair may drift sideways or rise up to around 2.0450, but the long term outlook looks bearish. Look for the Cable to move within 2.0400 to 2.0450 during the early part of tomorrows session, but I would keep my finger on the trigger and look to go short once you see some momentum grow in favor of the bears. (Speaking of the Bears, where’s a quarterback when you need one?)

USD/CHF

The Swissy finally made a nice rally today as it not only surpassed its 50 EMA on the 4hr chart (as I predicted) but it also moved up to its 100 SMA on the 4hr chart at around 1.1780. Daily stochastics are trending up and just leaving oversold territory so I’m still bullish on the pair in the medium term. However, short term says that we should see the pair pause or drift down, since 4hr stochastics are trending down. I would look for the Swissy to hover around 1.1750 or even drop to its 50 EMA on the 4hr chart to around 1.1725, but I still believe we have a lot more rallies left in this pair.

USD/JPY

Well my gut instict was right as the Yen headed down to 115.50 earlier today, but the pair did travel back up to its resistance point at 116.00. I’m still holding off on this pair as its really going nowhere at this point. 4hr and daily stochastics are trending up but they are moving like spaghetti so I don’t really have any clear pictures in my crystal ball. My advice is to wait another day until we get a better idea of what this pair may do.

I’m not really big into fundamentals but I feel that they are important to discuss. In this section I will be posting fundamental tidbits that I find interesting from various sources. If you find an article that you think would benefit everyone, please email me (Big Pippin) with your username, the article, and a link to where members can read the entire article.

Now onto the Fundamentals:
  • What’s the cause for the Dollar rally?
    • The dollars strength was not caused by the numbers released yesterday; as the ISM manufacturing data declined more than expected and the ISM Prices paid number also came in below expectations. These numbers show a US economy which is slowing and justify calls for additional interest rate cuts by the FOMC. No, the currencies, like Chuck, are taking a much needed breather. As Chuck explained yesterday, the Euro ‘gapped up’ over the weekend and this pullback is simply the markets way of filling in the gaps the currencies missed on the way up.
  • Housing Data will be extra important with the 50 BPS rate cute:
    • Let’s not blow off the housing data… After a 50 BPS rate cut last week, and the dollar’s fall VS the euro, I think the housing data will be very important.
  • The Chinese Yuan and what it could mean for the Dollar’s future:
    • And of course, if the Chinese do finally allow a much faster increase in the value of their currency, their need for holding US dollar reserves will likely shrink (i.e. much of the reserve build comes from the pegging process). And dollar for dollar they can buy more oil with a stronger currency (and every other major raw material they input—including pigs). At minimum, if this plays out, it could be yet another sentiment hit to the dollar.