The Dollar Starts To Gain Momentum

EUR/USD

Oh it does feel good when something you’ve been knowing would happen finally does! The Euro followed my prediction from yesterday to the tee (and that’s RARE). We saw the pair rise to 4200 and then proceed to drop back down. Now the pair is heading towards the 4100 level. 4hr and daily stochastics are trending down nicely and I would expect this pair to continue to drop tomorrow. However, with interest rate statements coming out tomorrow, ANYTHING could happen. Be careful around that time.

GBP/USD

Like the Euro, the Cable also dropped again today. The pair now looks like its on its way down to 2.0300. Both 4hr and daily stochastics are trending down with daily stochastics in overbought territory. Be prepared to see a large drop. This could all take place in one day or it could last over the rest of the week. Once again, be careful tomorrow as the BOE also has an Interest Rate Statement so anything could happen.

USD/CHF

The Swissy also followed my prediction from yesterday and traveled up nicely again today. Now the pair is facing resistance at the 1800 level. Both 4hr and daily stochastics are trending up which indicates more bullish movements, but I would wait to see if the pair can break 1800. The 1900 level is looking to be a very attractive target if you are looking to go long since both the 200 SMA on the 4hr chart and 50 EMA on the daily chart are lining up in that area. If you’re going long, I would look to take profits around that level.

USD/JPY

The Yen traveled higher today as it broke through 116.00 today. Both 4hr and daily stochastics are still trending up but are nearing the overbought territory. I would look for the Yen to find resistance around the 117.00 and we should see the pair drop from there. I’m not too confident on this, but based solely on the technical indicators, that’s what looks like might happen.

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.
News events to watch for tomorrow :
  • 7:00am ET– GBP Interest Rate Statement
  • 7:45am ET– EUR Interest Rate Statement
  • 8:30am ET– ECB President Trichet Speaks

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