The Dollar continues to rally against the Sterling and Yen

EUR/USD

The Euro once again rallied against the Dollar, breaking the 1.4200 and nearing 1.4250. I’m definitely holding off on this pair as I’m not really sure it will go next. 4hr stochastics are in overbought territory which indicates a short term bearish retracement. However, daily stochastics are trending up nicely, and the pair looks like it is poised to travel up to 1.4300. At this point I’m not too sure on a direction so I’ll sit back like a shark and wait until there is a better time to attack!

GBP/USD

Well the Cable dropped just like I thought it would, and I think we’ll see it continue to drop into tomorrow. Both 4hr and daily stochastics are trending down nicely and I would watch for the pair to continue dropping from 2.0350 down to 2.0300.

USD/CHF

Like the Euro, I’m also confused about the Swissy at the moment. 4hr stochastics are trending up while daily stochastics are trending down. Currently the pair is trading right at its 50 EMA on the 4hr chart at around 1800 and it looks like it could go to either up or down to its 200 or 100 SMA tomorrow. I’m not really sure where to go with this right now so I think I’ll hold off.

USD/JPY

The Dollar rallied nicely against the Yen today and it looks as though it may continue on up to 118.00. 4hr stochastics are still trending up which helps confirm this belief, but they are now entering overbought territory. I would look for the Yen to travel up to 118.00 but we should see it bounce back down from there.

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:
  • Eurozone ministers surely don’t want the Euro to be this strong….right?
    • As I said yesterday the Eurozone ministers were beginning their meeting to discuss the weak dollar, yen and renminbi… So… Some traders believe that means the ministers want the euro to be weaker… I believe traders that believe this are barking up the wrong tree… The European Central Bank (ECB) loves the strong euro, and I’ve explained why on several occasions in the past, but for those who missed class on those previous 1,000 times I’ve explained it… The strong euro does so much for the ECB’s mantra to provide price stability… A strong euro fights inflation, and increases its allure for foreign investment into the country. There are more reasons like the price of oil being reduced, so, you can see what I’m talking about now…
  • 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.
News events to watch for tomorrow :
  • 8:30am ET– US PPI, Core PPI, Retail Sales
  • 10:00am ET– Consumer Sentiment

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