Well the technicals had been screaming for the dollar to drop and finally with the positive German IFO numbers, the market got just the catalyst they needed to sell off their dollars. The German IFO index was forecasted to come in at 107 but came out at 108.7, which was a nice jump from its previous number of 106.8. The German IFO index is similar to the US Empire Index because it surveys several countries and asks them to assess their business situations and their expectations for the next 6 months. So what this report is indicating is that the business climate in Germany is good, which could mean more economic boosts and ultimately add ammo for the ECB to increase rates.
US Housing starts came out better than expected in November, rising to $1.58M compared to a revised $1.48M in October. Housing starts are still down on a year-over-year basis at 25%, but it’s definitely an improvement from October’s year-over-year basis which was down 27.3%. The increase in housing starts still shows that the housing market is weak but gives indication that the housing bubble may be near the bottom.
PPI (Producer Price Index) rose 2.0% in November which was better than the 0.4% consensus, with most of the rise taking place in energy and motor vehicles. Excluding those sectors, PPI has remained pretty tame. Core PPI rose 1.3% compared to the 0.2% consensus. In October, core PPI had dropped almost 1% and overall PPI had dropped 1.6%. Although PPI rose, the market didn’t pay much attention to it because CPI was released before the PPI report. PPI is usually released first and traders use it to forecast the CPI report which is why there wasn’t much reaction to this month’s PPI. Year-over-year PPI has is up 1.8%, and core PPI is up 0.9%. So overall, PPI remains moderate once you exclude the spikes from energy and motor vehicles. We’ll have to wait another month and see how things play out.
There are no major economic reports tomorrow but the BOE minutes from their last meeting are being released at 4:30 am ET; 9:30 GMT. Look for any clues as to what the BOE will do in the future regarding interest rates.
The Euro has rallied nicely and is now sitting at around 3200. Stochastics on the daily chart is heading up out of oversold territory so it looks like their could be a medium turm Euro rally. However, 4hr. stochastics is currently overbought and the pair is testing resistance at its 4hr, 100 EMA. If the pair can break through the 100 SMA, look for the Euro to hit 3250. If it bounces off of the 100 SMA look for the pair to move to around 3170 (50 SMA).
Similar to the Euro, the Cable has rallied nice today and is currently sitting around 9700. Daily stochastics is heading up which indicates a medium term Sterling rally but the 4hr. stochastics is overbought which could mean a short term drop. If the pair drops, look for it to move to around 9620 (100 SMA on the 4hr chart). If the Cable breaks 9750, then expect the pair to reach 9800, but I wouldn’t expect it to go any farther than that. (Except of course if the BOE minutes are incredibly hawkish)
Ahhh! Sweet revenge! Yesterday I said that I was going to exit half my position at 2200 and hold the other half for 2150. After several days of saying the pair was going to fall, the Swissy finally dropped down and got to as low as 2126 which also happens to be where the 4hr., 50 SMA is. So overall, the Swissy trade netted 190 pips! Not bad for a days work! The pair still shows signs for another drop because the daily stochastics is just heading down out of overbought territory. However, in the short term, the 4hr stochastics is oversold and we may see a short term rally back up towards 2200.
This pair is really starting to annoy me now. It just doesn’t want to move with the other majors. It’s as if there is a strong magnet at 118.00 and the Yen just can’t seem to break free from it. I am still in this trade and I am still going to hold my target at 117.50. I will exit half at 117.50 and hold the other half for 117.00. We’ve seen some very strong consolidation the past few days so I am expecting a big breakout sometime soon. I just hope it breaks out in my direction!
With a light economic load tomorrow, look for the markets to follow the technicals unless there is some crazy rogue statement from some central bank somewhere.