24-Oct 2008

CURRENCIES COMMENTARY

Expect the Dollar and Yen to go into a explosive rally mode

Upcoming International Reports (all times CT)

10/27 German IFO Business Climate Index 3:00 AM
10/27 Japan Retail Sales 6:50 PM
10/28 France Consumer Confidence 1:45 AM
10/28 France Housing Starts 1:45 AM
10/28 Japan Industrial Production 6:50 PM

DOLLAR: The world is preparing to roll up its sidewalks in the face of the fear of significant and sustained slowing fears ahead. While some might be incredulous with the sharp rise in the US Dollar, the fact that the financial crisis has now spread everywhere, it has become clear that anxiety is so severe that money is truly seeing the US Dollar as one of the few flight to quality destinations. In fact, with the Chinese president overnight labeling the global outlook as grim, it would seem like some world leaders are serving to excite the herd, instead of calming the herd. While it might not physically make a difference in the near term, the trade could also be recognizing that the US (the world's largest oil consumer) has its oil priced in Dollars and therefore the US is seeing the biggest or quickest benefit off sharply declining oil prices. While local US gas stations are begrudgingly lowering their prices, the type of break that has already taken place would ultimately result in at least a $700 million Dollar per day reduction in the amount of money spent on gasoline in the US! In the near term, classic macro economic influences will probably take a back seat to extreme anxiety and extreme flight to quality reactions. Next upside targeting in the Dollar on the monthly chart is seen up at 88.00 and then again up at 88.55.

EURO: While the Euro might see some fleeting technical support at the 125 level this morning, there would not seem to be a near term change of trend in the offing. In fact, with as many as 7 banks soliciting funds from the EU, we doubt that the Euro will see support off the mid 2006 consolidation lows around the 125.00 level. A failure below the 125 level could leave the next downside target in the euro off the monthly charts at the 120.00 level which is the level that the Euro traded at in early 2006.

YEN: The Yen is getting a full on influx of flight to capital flow and the currency is also seeing residual unwinding of stubborn carry trade positions. In order to find the next resistance zone for the Yen, one has to look to the monthly charts and to the 110.00 level. Traders should brace for an extremely violent trade ahead and perhaps a quick spike up to the 1995 highs up around the 125.00 level!

SWISS: In the face of what seems to be the biggest financial crisis of the last 100 years, the Swiss continues to free fall and that clearly suggests that the Swiss is not being seen as any type of safe haven. Next downside targeting on the charts is seen at 84.68 off the monthly charts.

POUND: It almost seems to be a waste of time to suggest that weak scheduled data from the UK overnight was of that much concern to the trade, as the Pound is streaking lower in the face of fears that the global economic crisis is set to at least temporarily get out of hand. While the Pound has encountered some monthly chart support at 160, there is little to suggest that the downtrend will be able to come to halt anytime soon. The next lower support level off the monthly charts in the Pound is seen at 157.70.

CANADIAN DOLLAR: Like the rest of the currencies, the Canadian is falling off a combination of flight to quality interest into the Dollar and perhaps because traders continue to downgrade the Canadian because of its reliance on global exports. The next downside point on the charts is seen at 75.00 especially if the currency fails to hold up at 74.88.

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. *Hit an objective of 99.88 on the December futures. Hit risk on the long puts at 30.
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) 10/24/2008: The market rallied to a new contract high. The daily stochastics gave a bearish indicator with a crossover down. Stochastics turning bearish at overbought levels will tend to support lower prices if support levels are broken. A positive signal for trend short-term was given on a close over the 9-bar moving average. The daily closing price reversal down puts the market on the defensive. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is 84.50. The market is becoming somewhat overbought now that the RSI is over 70. The next area of resistance is around 86.05 and 86.90, while 1st support hits today at 84.85 and below there at 84.50.

EURO (DEC) 10/24/2008: The market was pushed to a new contract low. The daily stochastics have crossed over up which is a bullish indication. Daily momentum studies are on the rise from low levels and should accelerate a move higher on a push through the 1st swing resistance. A negative signal for trend short-term was given on a close under the 9-bar moving average. It is a slightly negative indicator that the close was under the swing pivot. The next upside target is 129.72. With a reading under 20, the 9-day RSI indicates the market is extremely oversold. The next area of resistance is around 129.10 and 129.72, while 1st support hits today at 127.56 and below there at 126.63.

JAPANESE YEN (DEC) 10/24/2008: Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. A positive signal for trend short-term was given on a close over the 9-bar moving average. The gap upmove on the day session chart is a bullish indicator for trend. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The next upside objective is 105.94. The 9-day RSI over 70 indicates the market is approaching
overbought levels. The next area of resistance is around 105.38 and 105.94, while 1st support hits today at 103.53 and below there at 102.23.

SWISS (DEC) 10/24/2008: 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. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside objective is now at 85.50. The 9-day RSI under 30 indicates the market is approaching oversold levels. The next area of resistance is around 86.70 and 86.90, while 1st support hits today at 86.00 and below there at 85.50.