21-Oct 2008

CURRENCIES COMMENTARY

On going Dollar edge due to proactive US management

Upcoming International Reports (all times CT)
10/21 Swiss Trade Balance 1:15 AM
10/21 Canadian Monetary Policy 8:00 AM
10/22 Canadian Leading Indicators 7:30 AM
10/22 Canadian Retail Trade 7:30 AM
10/22 Japan Trade Balance 6:50 PM
10/23 France Business Survey 1:45 AM
10/23 Euro-zone Balance of Payments 3:00 AM
10/23 UK Retail Sales 3:30 AM
10/23 Euro-zone Industrial New Orders 4:00 AM
10/24 UK GDP 3:30 AM
10/24 Canadian Consumer Price Index 6:00 AM
10/27 German IFO Business Climate Index 3:00 AM
10/27 Japan Retail Sales 6:50 PM

DOLLAR: Apparently the market viewed the US Fed Chairman's support for another fiscal stimulus package as a positive for the US Dollar, as the US Dollar managed another new high for the move in the wake of the Fed leader's comments yesterday. With the French overnight injecting capital into key banks and interbank lending activity at least tracking back toward a more normal environment, that seems to have left the US Dollar with an edge. In fact, seeing financial sector conditions leaning toward normal and seeing the US tossing around the prospects of another US stimulus program suggests that the US could end up weathering the crisis somewhat better than other areas. A good example of the markets view, that the US is better equipped to handle slowing is seen in the French Presidents comments overnight that suggest the Euro zone structure doesn't allow for top leaders to tightly coordinate policy. In short, the world is anticipating significant slowing ahead, but the currency trade is clearly willing to bet that the US will at least attempt to head off the slowing faster than other areas. With the break in the Dollar to 82.00 level clearly rejected that would seem to give the bull camp the technical capacity to push the Dollar to an even higher trading range ahead.

EURO: A big range down extension in the Euro is clearly justified by news that France had to inject capital into some key banks overnight. As suggested in the Dollar coverage this morning, the trade is also concerned that the Euro zone political structure doesn't seem to be nimble enough to quickly respond to the classic slowing threat that looks to be left in the wake of the severe financial sector disruption. In order to arrive at some near term downside targeting in the Euro, one has to turn to the weekly charts and the next significant consolidation zone down around the 131.13 level.

YEN: Surprisingly the Yen seems to have rejected a slide to the 98.00 level again in the overnight action. Perhaps the AIG/Lehman CDS payout has the Yen in a firm bid posture this morning as some traders obviously think that the event could foster another significant financial sector situation. Apparently some traders think that some hedge funds and or insurance companies might not have raised enough cash to settle obligations on Lehman and that could certainly ignite the Yen for another quick run up to the October highs. However, a number of analyst think that the deadline will pass and those injured by the settlement won't necessarily reveal the impact until their next earnings reports are released and therefore the settlement date could pass without a major anxiety event and that could leave the Yen vulnerable, especially if the December yen manages a bounce this morning up to 99.50.

SWISS: The Swiss didn't really seem to be a flight to quality instrument in the face of some of the highest anxiety of the last century and therefore the Swiss doesn't appear to be poised to get any fresh speculative interest into the unwinding of the AIG/Lehman CDS obligations. With the US talking up a secondary stimulus program and the short end of the credit markets seemingly thawing, the path of least resistance in the Swiss looks to remain down. The next significant downside consolidation zone in the December Swiss is seen at 86.41.

POUND: While the US is expected to see just as much slowing evidence as the UK, the Pound apparently is interested in factoring in even more significant slowing in the UK economy ahead In fact, the market is expecting a slide in UK factory orders data for the month of October and that news is expected to keep the Pound under pressure and potentially on a track to retest the October lows in the coming trading sessions.

CANADIAN DOLLAR: With the Dollar remaining very strong and the global economic outlook deteriorating, it is not surprising to see the Canadian Dollar remain in a downward posture on the charts. In fact, with Canadian wholesale trade falling by more than expected and the BOC expected to trim interest rates, it would seem like the bear camp is set to retain the edge today. While some might suggest that a rebound in some commodity prices like oil will lend some support to the Canadian, ongoing weakness in metals and grain prices clearly countervail any hope of commodity support for the Canadian Dollar. In the near term, the odds of another new low for the move look to be pretty high.

TODAY'S MARKET IDEAS:
None.

NEW RECOMMENDATIONS:
None.

PREVIOUS RECOMMENDATIONS:
1) Long 2 November Yen 96.50 puts at 94 and long the December Yen futures at roughly 98.80. Risk the combination to a net loss of $1,900. *Use an objective of 99.88 on the December futures.
2) 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) 10/21/2008: A new contract high was made on the rally. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's close above the 9-day moving average suggests the short-term trend remains positive. The outside day up is a positive signal. There could be more upside follow through since the market closed above the 2nd swing resistance. The near-term upside objective is at 84.77. The market is approaching overbought levels with an RSI over 70. The next area of resistance is around 84.26 and 84.77, while 1st support hits today at 82.62 and below there at 81.49.

EURO (DEC) 10/21/2008: The market broke to a new contract low. Momentum studies are declining, but have fallen to oversold levels. The market's short-term trend is negative as the close remains below the 9-day moving average. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next downside objective is now at 131.96. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 133.68 and 134.49, while 1st support hits today at 132.42 and below there at 131.96.

JAPANESE YEN (DEC) 10/21/2008: Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out. The close below the 9-day moving average is a negative short-term indicator for trend. It is a slightly negative indicator that the close was lower than the pivot swing number. The next downside target is now at 98.47. The next area of resistance is around 98.61 and 98.71, while 1st support hits today at 98.50 and below there at 98.47.

SWISS (DEC) 10/21/2008: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The close below the 9-day moving average is a negative short-term indicator for trend. The gap lower price action on the day session chart is a bearish indicator for trend. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next downside objective is now at 86.94. The next area of resistance is around 87.05 and 87.07, while 1st support hits today at 86.99 and below there at 86.94.