You’re probably wondering where I was on Friday and Monday since there was no post. Or then again, maybe you’re not, haha. Well just to fill you in, me and the rest of the FX-Men were in the fabulous city of Las Vegas for the FXCM Traders’ Expo. There were great speakers like Kathy Lien, Boris Schlossberg, and Jack Schwager. Then there were boooorrrring speakers like…uhh what was his name again? And finally, there were awesome speakers like Jes Black and Jim Rogers. The best part of course was the fact that the conference was in Vegas baby!
So I’d like to start off this post by showing some pictures of the event. Keep in mind these were taken with my crummy cell phone cam but they’ll have to do.
Overall, it was a nice weekend getaway but now it’s back to the grind. As expected, the Fed kept interest rates steady at 5.25%. The rest of the statement basically said that the economy is moving at a moderate pace but has seen "substantial" cooling of the housing market. Their inflation views are still the same and they said that they’ll be watching economic data closely for future rate increases or cuts. So the bottom line is that the Fed pretty much stayed neutral with their comments as everything they said was pretty much a repeat of what they said last time.
The trade balance narrowed again to $-58.9B which was a surprise from the $-63.0 B forecast. The main reason for the drop was due to the lower oil prices. That and the fact that we’re seeing some crazy warm weather during this time has caused the demand for heating oil to drop. This should give the 4th quarter GDP a nice little boost.
The dollar made some nice gains on Friday after the treasury secretary, Henry Paulson, said that he felt very very very good about the chance for the US to see have a really sustained expansion due to the NFP report. Now we’re seeing the markets settle back down and it will be interesting to see what’s in store for the Dollar this week.
The Bias-O-Meter hasn’t changed and is still reading dollar negative. The Bias-O-Meter has been reading dollar negative for the past 6 weeks now. In that time, the Cable has rallied about 700 pips. The Euro has rallied about 600 pips. The Swissy has also gained about 600 pips against the Dollar, and the Yen has gained about 400 pips (although it is starting to lose some of that early this week).
EUR/USD; GBP/USD= Bullish
USD/CHF; USD/JPY= Bearish
US Retail Sales (both)
8:30 am ET; 13:30 GMT
Previous= 0.4%; Forecast Range= -0.3% to +0.3%; Median Consensus= 0.1%
"Excluding autos" previous= 0.4%; Forecast Range= -0.2% to +0.4%; Median Consensus= 0.3%
The last 2 months have shown retail sales declining due to the lower gas prices. We may see some of that again, but the more important thing to look for is if the rest of retail sales excluding gasoline has declined.
The EUR/USD found support at its 100 SMA on the 4hr chart after Paulson’s statement on Friday and has since bounced back up to as high as 3292. 4 hr. Stochastics is heading into overbought territory and the daily stochastics is in the middle zone after falling out of overbought territory. I think we could see one more Euro push to around 3350 but I think the pair will have a short term drop off after that.
The Cable dropped down to it’s 38% Fib retracement level last week and has shot up to 9700 since then. 4hr stochastics shows the pair being overbought but daily stochastics is right in the middle. If it goes up, I see it going no higher than 9800. If it goes down, I don’t see it going any lower than 9500. A good play would be to wait and see which way the Cable goes and if it hits one of these levels, you could take the opposite trade since these seem to be the short term infleciton points. So if the pair hits 9800 you could short it, and if the pair hits 9500 you could go long. Another opportunity is if the pair breaks 9550, you could ride the wave and short it down to around 9500. There are a lot of options here but it all depends on what the pair does next.
Like the Cable, it’s hard to say where the Swissy will go right now since it isn’t around a good support/resistance level. I will say that if the pair goes down to 1900 then you could go long because 1900 is a prett good support area. Unless there is a major fundamental occurrence tomorrow, expect 1900 to hold its ground.
Out of all the pairs, the Yen is giving the best looking directional signs. The pair has been testing resistance at its 200 SMA on the 4hr chart and the 4hr stochastics is heading down now after being in overbought territory. The daily stochastics is also in overbought territory which adds to my thinking that the pair will drop. 116.00 looks like a really good support level so I would make that my target if you decide to go short on this pair.
Other than the US Retail Sales report it should be a pretty light economic load tomorrow. If there is a surprise in the report (especially if the numbers our outside of the forecast range) then expect some good movement. Also be sure to dig deeper into the actual number and try to find the reasoning behind it. That will give you a broader picture of the US economic outlook.