27-Oct 2008

CURRENCIES COMMENTARY

Expect the Swiss to be the best bull play this week

Upcoming International Reports
10/27 German IFO Business Climate Index
10/27 Japan Retail Sales 10/28 France Consumer Confidence
10/28 France Housing Starts 10/28 Japan Industrial Production
10/30 France Employment Situation 10/30 France Producer Price Index
10/30 German Employment Situation 10/30 Euro-zone Business and Consumer Survey
10/30 Canadian Industrial Product and Raw Materials
10/30 Japan Manufacturing PMI 10/30 Japan Consumer Price Index
10/30 Japan Household Spending 10/30 Japan Unemployment Rate
10/31 Euro-zone Unemployment Rate
10/31 Swiss KOF Leading Indicator
10/31 UK Consumer Confidence (GfK)
10/31 Canadian GDP (By Industry)
11/03 Swiss PMI
11/03 German Manufacturing PMI
11/03 Euro-Zone RBS\NTC Research Manufacturing PMI
11/03 Euro-Zone RBS\NTC Research Services PMI
11/03 UK CIPS/NTC Research Manufacturing PMI

DOLLAR: While the uptrend in the Dollar is firmly entrenched, we see several developments that could begin to slow the rate of climb in the Dollar in the coming week. First of all, it seems that the Swiss has begun to garner some flight to quality interest over the last two trading sessions and that would seem to break the flight to quality monopoly recently held by the Dollar and the Yen. Furthermore, the G7 has threatened to slow the climb in the Yen and that could also indirectly provide some lift to a host of currency that have recently been under aggressive selling pressure because of the Dollar rise. Another development that could serve to slow the near term rise in theDollar, is the anticipation that the US will cut interest rates later this week. In the near term, we doubt that the Dollar rise will halt until the December Dollar reaches up to the weekly highs posted back in late 2005 just under the 92.50 level. However, the October 21st Commitment of Traders with Options report for US Dollar showed the Non-commercial position to be net long 26,571 contracts, with the Non-reportable position net long 1,565contracts and that made the "combined" spec and fund position net long 28,136 contracts as of early last week.With the Dollar forging an additional 350 point rally in the wake of the COT report mark off, we suspect that the Dollar is already within close proximity of its record spec long positioning of 35,820 contracts that was posted back on September 16th of this year. The Dollar is overbought but apparently near term momentum is going toleave the bull camp with the edge today.

EURO: Turning to the weekly charts in the Euro it would appear that the Euro is headed down to the next key support area down at 125.00 and with a failure there, the market could even be headed to the 120 level. In my opinion, the euro zone is waiting too long to stimulate with lower interest rates, but perhaps the Euro zone Ministers are happy to see the euro decline, as that could eventually provide a lift to their economy through the export venue. With the German Ifo readings overnight highlighting the "expectation" of significant slowing ahead,it would appear that even more damage to the Euro zone economy will be expected before the ECB acts. The October 21st Commitment of Traders with Options report for Euro showed the Non-commercial position to be netshort 33,785 contracts, with the Non-reportable position net short 2,949 contracts and that made the "combined"spec and fund position net short 36,734 contracts as of early last week. However, the Euro fell an additional 7 points below the level where the COT report was measured and that had to pump up the net short reading. There cord net short reading in the Euro was 46,370 contracts from September 18th of this year and therefore onecould suggest that the euro is already within the vicinity of its record short positioning. For now, we doubt that technical considerations will be able to arrest the slide in the Euro.

YEN: With the latest upward explosion in the yen, the currency has apparently sparked a warning from the G7 but even that doesn't seem to be capable of turning off a mad rush toward the Yen. Apparently the market thinks that the 110 level is some form of intervention line in the sand and that argument was given some credence by the failure to hold above that level late last week. Like the Dollar, we doubt that the trade will be able to stop the rallyin the Yen easily but we would suggest that the rate of climb in the Yen since the August low has now put the currency in a historically overbought condition.

SWISS: Apparently concerns of something worse than a deep global recession are beginning to surface astraders are finally turning to the Swiss as perhaps the ultimate flight to quality currency! With the Swiss failure from 101.25 early in the year, to a recent low of 85.25, the Swiss is certainly cheap and deserves to be considered an alternative flight to quality instrument. However, since the Swiss is technically still in a down trend pattern, traders should consider the purchase of December just out of the money call options instead of Swiss futures.

POUND: While the UK's Brown floated the idea of coordinated interest rate cuts ahead, the Pound still looks tore main pinned down on the charts, with the next chart support level not found until the 150 level on the monthly charts. Reports of ongoing sharp house price declines in the UK suggests that the UK economic outlook continues to deteriorate and that could leave the Pound on a track to eventually test the 2000 through 2002 consolidation low zone all the way down at 140!

CANADIAN DOLLAR: Until the outlook for the global economy improves and/or the sharp declines in key Canadian commodity prices slow, the Canadian would seem to be a primary deflationary instrument. In short, afurther and perhaps more serious downgrade of the global economy ahead, could simply rocket the Canadian toward the next major chart consolidation zone down at 74.20 on the monthly charts.

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) : The market rallied to a new contract high. Momentum studies are trending higher but have entered over bought levels. The market's short-term trend is positive on the close above the 9-day moving average. Market positioning is positive with the close over the 1st swing resistance. The near-term upside objective is at 88.88. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 88.14 and 88.88, while 1st support hits today at 86.11 and below there at 84.82.

EURO (DEC): The sell-off took the market to a new contract low. The daily stochastics gave a bearish indicator with a crossover down. Daily stochastics declining into oversold territory suggest the selling may bedrying up soon. The market's close below the 9-day moving average is an indication the short-term trend remains negative. There could be some early pressure today given the market's negative setup with the close below the 2nd swing support. The next downside target is 124.50. More downside action may be limited by the RSI under20 putting the market in extremely oversold territory. The next area of resistance is around 126.94 and 128.09,while 1st support hits today at 125.14 and below there at 124.50.

JAPANESE YEN (DEC) : A new contract high was made on the rally. Momentum studies are trending higher but have entered overbought levels. The close above the 9-day moving average is a positive short-term indicator for trend. Follow through buying looks likely if the market can hold yesterday's gap on the day session chart. The market's close above the 2nd swing resistance number is a bullish indication. The near-term upside target is at 106.24. The market is approaching overbought levels with an RSI over 70. The next area of resistanceis around 106.24 and 106.24, while 1st support hits today at 106.24 and below there at 106.24.

SWISS (DEC) : Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The market's close below the 9-day moving average is an indication the short-term trend remains negative.The daily closing price reversal down is a negative indicator for prices. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside objective is now at 84.81. The9-day RSI under 30 indicates the market is approaching oversold levels. The next area of resistance is around 86.55 and 87.50, while 1st support hits today at 85.21 and below there at 84.81.