The Dollar Falls….Again!

Bank of Japan governor Fukui said that they will adopt a forward-looking approach, and take action (against rising prices) in advance, moderately. Or, in layman’s terms, the BOJ is probably going to raise rates again. And when a big bank leader says something like this, it usually means good things for their currency. This statement sent the Yen in a frenzy and as a result, it kicked the dollar’s ahem…"rear end" today.

Janet Fellen, the San Fran Fed Pres., said in a speech today that countries may decide to channel less of their reserves into dollar assets. Apparently she is not the only one saying this. It seems that even Mr. Greenspan is also paying attention to this very point. Foreign investors have been pouring money into dollar assets and according to these 2 financial gurus, this trend may not continue for long. If they are right, this could spell trouble for the Greenback.

Speaking of the Greenback, mid-term elections were held today. I came across a really cool article that talked about the market’s reactions to past elections. It basically says that when one party controls both the House and the Senate, it means good news for the dollar. On the other hand, when there is gridlock (each party controls either the House or Senate), it’s usually dollar negative.

"Looking back at the last six mid-term elections, the US dollar has rallied in all but one (2002) and in each of these cases, there was a one party majority win. This suggests that the currency market actually likes political harmony and dislikes political gridlock. Therefore, should the Democrats win either the House or Senate, the dollar could resume last month’s weakness.  If Republicans retain control on the other hand, November could prove to be a dollar bullish month."  

Read the full article here

Coming Up:

Again, there aren’t any news reports that I think will cause any chaos tomorrow but Chicago Fed Prez, Moskow, speaks tomorrow so pay close attention to what he says. The market is looking for reasons to either buy or sell the dollar so what he says could make an impact on tomorrow’s dollar movement.

Chart Analysis:

EUR/USD

I talked about retracements and how we were likely to see them because of the strong dollar rally on Friday. I just didn’t think they would be this extreme of a retracement. The Euro retraced as high as 2820 which was a complete reversal from Friday’s downward move. Now that we’ve seen a good retracement, both the 4hr chart and the daily chart are showing signs of another downward move in the EUR/USD as both stochastics have touched overbought levels and are heading back down. I expect this pair to get down to 2750 as a primary target and maybe even as low as 2725-2730 (the 50 SMA).

GBP/USD

Well my trade idea didn’t work out as I planned. While I did expect the Cable to rally to 9050, I didn’t think it would go as high as 9123 today. Now that the pair has hit 9100 (which by the way is that strong 3 month resistance level I’ve been talking about), and stochastics on both the 4hr and daily chart have been overbought and heading down, there’s a good chance we’ll see the Cable fall to 9000. Coincidentally enough, that is where the 50 SMA seems to be headed.

USD/CHF

All I can say about the Swissy is that it looks like it will head back up. I can’t find any good technical targets but both stochastics on the 4hr and daily chart show signs for an upward move. On the daily chart, the all 3 moving averages (50,100,200) are converging together which means we are seeing some rangebound movement. Since the pair dropped today, I expect to see a rally tomorrow.

USD/JPY

Like the Swissy, I don’t see any good technical entries or targets. However, I do see signs that the pair will head back up after today’s strong downward movement. Look for the Yen to move back up to 118.00

Conclusion:

Be on the lookout for any comments made by any Fed Presidents or Bank Governors and whether they speak hawkish or dovish. Their statements will play important roles in this week’s market movements since there aren’t too many important fundamental reports coming out.

Happy trading!

BP