16-Oct 2008

CURRENCIES COMMENTARY

The $ retains a slight edge despite weak numbers directly ahead

Upcoming International Reports (all times CT)
10/16 Swiss ZEW Investor Sentiment 4:00 AM
10/16 Canadian Monthly Survey of Manufacturing 7:30 AM
10/17 Euro-zone Foreign Trade 4:00 AM
10/20 German Producer Price Index 1:00 AM
10/20 Canadian Wholesale Trade 7:30 AM

DOLLAR: We are somewhat surprised that the Dollar continues to hold up somewhat in the face of the San Francisco Fed comments that the US economy is already in a recession and that the Dollar also remains well bid in the face of what should be rather weak US retail sales figures later this morning. Apparently the currency markets continue to think that the US is still somewhat ahead of the curve in battling the credit crisis and perhaps even somewhat more capable of limiting the upcoming macro economic slowdown. However, with the Dollar showing a positive tilt early in the trading session today and seemingly undeterred by the initial weakness in the
US equity market, one can't rule out an attempt to run back up toward the Monday highs. Since we see no fundamental justification for the ongoing confidence in the Dollar, we can't suggest that traders pursue the Dollar on the upside. However, the path of least resistance in the Dollar or the trend appears to be up, even though that action feels very wrong into a pretty active slate of US economic data today.

EURO: With inflation readings in the Euro zone and from Germany both softening overnight, one gets the impression that the ECB might eventually have room to reduce interest rates. However, we don't get the sense that the market is poised to drive currency prices around on the prospect of a change in the interest rate differential. In fact, with the press continuing to decry the EU efforts to coordinate their response to the credit crisis, it would seem like the December Euro is destined to track inside a 137.75 to 135.00 trading range. In fact, not seeing the Euro rally in the face of patently weak US scheduled data this morning should highlight the Euro's lack of ongoing bullish favor.

YEN: With world equity markets showing a slight downside extension of the prior trading session's profit taking slide, there would appear to be rekindled flight to quality concerns surfacing again. Therefore, the Yen appears to be poised to regain the 100 level and perhaps even the 101 level over the coming two trading sessions. However, the yen would seem to be facing an all or nothing condition, where the trade either embraces the flight to quality angle, or the trade could become concerned about a significant recession in the Japanese economy. For the near term, the path of least resistance in the Yen is expected to be higher.

SWISS: The Swiss seems to have found some form of solid support around the 88.00 level and with anxiety toward the global slowdown rising again, equity prices under initial pressure and the EU Summit still considering a very wide array of plans, there would seem to be a supportive environment for the Swiss. Therefore pushed into the Swiss, traders should prefer the long side.

POUND: Even though UK unemployment levels overnight highlight a very slow UK economy, the Pound is showing signs of initial strength today and that is probably a function of the ongoing central bank debate in the Euro zone. Clearly classic economic readings are of little concern in the current marketplace, with the action apparently being dominated by entrenched ideas that the US Fed will be able to handle the crisis better than other central banks. However, the market also seems to think that the UK central bank will handle the crisis somewhat better than the EU. The Pound might rally today, but we see significant resistance at 177.42.

CANADIAN DOLLAR: Despite the sharp short covering run up in the Canadian off the recent lows, the currency remains under a liquidation threat. In our opinion, it will take a fairly broad based macro economic revival of optimism to create an uptrend pattern in the Canadian. In our opinion, the next move in the Canadian will be a slide back below the 86.00 level.

TODAY'S MARKET IDEAS:
None.

NEW RECOMMENDATIONS:
None.

PREVIOUS RECOMMENDATIONS:
1) Long 3 December Canadian 98.50 calls from 82 and short the December Canadian futures at 95.38. Risk the combination to a net loss in excess of $1,000. *Hit objective on the initial short futures 92.30, which more than finances the long call play. **Re-Sold the December futures 93.16 *hit second objective of 92.80. Hold the calls for a futures move above 98.00.

CURRENCIES TECHNICAL OUTLOOK:
Note: Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report.

US DOLLAR (DEC) 10/15/2008: A bearish signal was triggered on a crossover down in the daily stochastics. Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. A positive signal for trend short-term was given on a close over the 9-bar moving average. The market's close below the pivot swing number is a mildly negative setup. The next downside target is now at 80.93. The next area of resistance is around 82.02 and 82.20, while 1st support hits today at 81.39 and below there at 80.93.

EURO (DEC) 10/15/2008: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. A negative signal for trend short-term was given on a close under the 9-bar moving average. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next downside objective is 135.25. The next area of resistance is around 137.30 and 138.25, while 1st support hits today at 135.80 and below there at 135.25.

JAPANESE YEN (DEC) 10/15/2008: The daily stochastics have crossed over down which is a bearish indication. Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. The close above the 9-day moving average is a positive short-term indicator for trend. The gap lower on the day session chart is bearish and puts the market on the defensive. It is a slightly negative indicator that the close was lower than the pivot swing number. The next downside target is now at 97.36. The next area of resistance is around 99.40 and 99.69, while 1st support hits today at 98.24 and below there at 97.36.

SWISS (DEC) 10/15/2008: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's close below the 9-day moving average is an indication the short term trend remains negative. The market's close below the pivot swing number is a mildly negative setup. The next downside target is 87.88. The next area of resistance is around 88.66 and 88.99, while 1st support hits today at 88.11 and below there at 87.88.