The Dollar and Sterling bust over the Holidays

EUR/USD

The Euro has been softening up after reaching a new high at 1.4824 on Friday and has since retraced back below the 1.4700 mark. Daily stochastics shows overbought tendencies which means we could see the Euro make a drop over the medium term. However, because of the heavy short term drops, 4hr stochastics have reached oversold territory and have now crossed up. Look for the Euro to bounce off of its 50 EMA and 100 SMA on the 4hr chart at around 1.4650 and make a run back up to 1.4700.

GBP/USD

The Sterling has dropped pretty hard over the last month and seems to have bottomed out at 1.9650. 4hr stochastics are trending up while daily stochastics are hooking up in oversold territory. In addition, we are also seeing a bullish divergence on the daily chart which adds to my bullish bias. Currently the pair is trading just above 9700 and I would look for it to run up to at least 9750 by the end of the day tomorrow.

USD/CHF

The Dollar has been suffering against the Swissy for the past month now and may have bottomed out last Friday near the 1.1000 mark. Daily stochastics shows an upward cross in oversold territory which indicates what could be the beginning of a medium term uptrend. However, 4hr stochastics are starting to turn down near the overbought region which could mean a short term drop. I would look for the pair to find resistance at 1.1200 which should leave to a bounce down towards the 1.1150 mark or at least close to it.

USD/JPY

Before the holidays, you might remember me rambling on about how the Dollar would drop against the Yen because of that huge bearish hidden divergence that had formed on the daily chart. If you were able to follow that divergence and take a short trade, then you probably bought some nice late Christmas gifts because the pair dropped about 600 pips right after the holiday! At this point, it looks like the pair may be done dropping for now as it bottomed out at 108.00. Daily stochastics are in oversold territory which means we could see an upward retracement in the medium term but 4hr stochastics are in "no mans" land right now as it’s simply drifting between overbought and oversold territory. I would hold off on the pair for now and let it cool off before making a move.

 

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:
  • Fed Looks to End Credit Crunch
    • The Fed and other global central banks announce a new auction designed to let beleaguered financial institutions access more cash.
    • In essence, the Fed is giving beleaguered banks the opportunity to access funds it might need for year’s end without having to borrow money directly from the Fed at the discount rate of 4.75 percent.
    • The Fed added that it was coordinating with the Bank of Canada, European Central Bank, Bank of England and Swiss National Bank on the auction process in order to "address elevated pressures in short-term funding markets."
  • Fed Forecasts Slower Growth and More Out of Work Next Year
    • The housing collapse and credit crisis will slow economic growth and nudge up unemployment next year, the Federal Reserve said Tuesday in a first-of-its-kind forecast that some economists believe will lead to interest rate cuts early in 2008.
  • Bernanke Sees Slower US Growth
    • Federal Reserve Chairman Ben Bernanke said Thursday that a host of economic problems, including the severe housing slump, will cause business growth to slow noticeably in coming months. Bernanke told Congress’ Joint Economic Committee that the central bank is watching developments closely, but gave no signal that it’s prepared at the current time to cut interest rates even further. He stressed that the central bank was keeping all options open, saying the Fed would be closely watching economic growth and the threat of inflation.
  • "Model Behavior"
    • Super Model Gisele Bundchen has decided that she wants to remain the world’s richest model by insisting that she be paid in almost any currency but the U.S. dollar! OK… Now the dollar has been officially dissed! Sure guys like Rogers, Buffett, Gross, Butler, Wiggin, and Bonner have dissed the dollar because of the fundamentals… But when a super model decides to side with us, well then we’ve got ourselves what I’ll call… "Model Behavior"!\
News events to watch for tomorrow :
  • 10:00 EDT– US Pending Home Salse

For a list of all of tomorrow’s news events, check out our Forex Calendar