Will the dollar fall this week?

So what did we learn last week? We learned that inflation is flat, but at the same time we are still seeing signs of a healthy economy thanks to the American consumers. Bolstered by the business of the holidays, consumers are rampantly spending their cash on gifts for their loved ones, effectively boosting retail sales. And when consumer sales are up, expect prices to go up with it. So while CPI last week showed flat inflation, I don’t expect the next ones to be so tame.

The Current Account widened to -$225B which was pretty much expected. Although the -$225B was a wider number than October’s (-$217B) it didn’t seem to affect the market much and the dollar once again rose against the majors. How long will this last? According to the technicals, it doesn’t look like it will last much longer. In fact, the technicals have been screaming for the dollar to weaken for quite some time now and I think we are finally at that point.

Weekly Bias-O-Meter

Nothing has changed as far as the Bias-O-Meter goes. It’s still saying that the momentum is still against the dollar. With the dollar gains this week, the momentum is getting weaker but the trend is still in favor of the majors.

EUR/USD; GBP/USD= Bullish
USD/CHF; USD/JPY= Bearish

Coming Up:

US Housing Starts
8:30 am ET; 13:30 GMT
Previous= $1.49M; Consensus= $1.55M; Forecast Range= $1.40-$1.58M
Another housing market gauge. Housing has been sucking so look for a good number to keep the buck rollin.

PPI (Overall and Core)
8:30 am ET; 13:30 GMT
Previous= -1.6%; Consensus= 0.4%; Forecast Range= -0.1%-1.5%
(Core) Previous= -0.9%; Consensus= 0.2%; Forecast Range= -0.1%-0.4%
Another inflation tool for the Fed. High=Dollar positive. Low= Dollar negative.

Chart Analysis:

EUR/USD

Darn it! My entry wasn’t hit at 3030 and I think I might be too late to enter. On Friday, I wrote that I was going long at the 38% Fib line of the daily chart. Unfortunately the EUR/USD didn’t get that low and it seems like it might already be turning. At this point I think the pair is going to hit its 50 SMA on the 4hr chart which is right around 3150. Daily stochastics is in oversold territory and 4hr stochastics is heading out of oversold territory which also gives me good reason to believe the pair is headed up.

GBP/USD

The Cable smacked into its 38% Fib line on the daily chart and was turned back…at least for the moment. Daily stochastics is not fully oversold yet and the 4hr stochastics hasn’t moved out of its oversold territory so there might be another attempt to break that 38% Fib line. I still think this pair is headed back up, it’s just a matter of where it will bottom out. Look for the Cable to move to 9550.

USD/CHF

Mwhahaha! I’m now getting my revenge on the Swissy. My trade from Friday triggered at 2270 and it looks like my target at 2200 will be hit. I’m going to exit half of my position at 2200 and let the other half of my position run to 2150 because I think the pair has some dropping to do. Daily stochastics is in overbought territory and seems to be headed down. 4hr. stochastics is also heading down, moving out of its overbought territory.

USD/JPY

Ay yi yi! This pair is moving slower than a turtle. I’m still in my trade but because of this slow moving market, my target is changing every day. Now it looks as though 117.50 is a reasonable target and I will exit half my position there and let the other half ride to 117.00. Daily stochastics has been overbought for a while so I think this pair is still ready to drop.

Conclusion:

We have a week full of economic events so it should be full of nice moves and plenty of opportunities to trade. Technicals are, and have been, showing signs for the dollar to drop and if the fundamentals support the technicals, then be prepared for the dollar to take a nasty spill this week. Happy trading!