28-Oct 2008

CURRENCIES COMMENTARY

Temporary back and fill action not a shift in the trend

Upcoming International Reports
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 Canadian Producer Price Index
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: Apparently some of the flight to quality psychology has been tamped down for the time being as the US Dollar is seeing some profit taking in the wake of gains in international equity markets overnight. With the Dollar clearly reaching an excessive overbought technical condition on the charts recently and the extreme fear and anxiety over the global credit crisis potentially set to take at least a temporary break, it would not be surprising to see the Dollar weaker for 24 to 36 hours. As we suggested yesterday, the prospect of intervention against the Yen, the prospect of US rate cuts and some flight to quality migration toward the Swiss, all seemed to hint at atemporary pause in the somewhat historical Dollar run up. While the trade generally expects the US Fed to cut interest rates by 50 basis points there are some traders anticipating a 75 basis point cut and that type of move would probably temporarily serve to undermine the Dollar. It is also possible that a sweep of weak US data this morning could rekindle some concern toward the US economy again, and that in turn could facilitate the profit taking in the Dollar in the morning action today. Near term downside corrective action is seen at 87.61 today.

EURO: A pattern of lower highs in the Euro and interest in other currency market developments means the Euro will probably not get the brunt of the technical short covering interest in the coming two trading sessions. In fact,with evidence of slowing seen overnight from the French Consumer confidence readings, we suspect that theEuro will only forge a fleeting bounce today. With the US poised to cut interest rates and the BOE recently hinting at the prospect of rate cuts, one really gets the sense that the ECB is falling even further behind the curve andthat could mean that slowing in the euro zone will continue to worsen and that the Euro zone will probably be thelast to recover in the event that overall global conditions show signs of stabilizing.

YEN: Apparently the Yen was historically over wound on the upside and the threat of intervention and a tempering of the flight to quality angle seems to have prompted a backlash on the charts overnight. In fact, with the Nikkei joining the short covering pulse overnight, the flight to quality status of the Yen is at least temporarily reversed and given the historical rate of climb in the Yen recently traders should expect a rather violent corrective balancing on the charts over the coming two trading sessions. Near term corrective targeting in the December Yen is seen at 104.66 and unless the market returns to that level in the wake of the US data this morning, it is possible that the yen will hang up in a 104.66 to 105.95 range for the coming 36 hours of trade before a major trend decision is made Wednesday afternoon.

SWISS: The action in the Swiss today will be very telling, as the Swiss recently drifted into a flight to quality mode and a temporary abatement in high anxiety could have a noted impact on the currency. Clearly the December Swiss is capable of a quick slide back to quasi consolidation support on the charts around 85.61 especially ifglobal equity markets forge impressive two day gains into the US rate cut window on Wednesday afternoon asthat could mean that the Swiss falls to even lower support of 85.50.

POUND: Certainly the Pound is excessively oversold, especially given the compacted decline of the last two weeks and therefore a knee jerk bounce in the currency is possible. However, given the lackluster initial action inthe Pound today the currency isn't giving off the impression of a currency expected to come back into full favor.Therefore, we see a muted bounce to only 158.54 basis the December Pound contract. Apparently the promise of coordinated rate cuts from the UK's Brown has failed to stir optimism toward the Pound.

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. Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The market's short-term trend ispositive on the close above the 9-day moving average. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next upside objective is 89.28. The market is becoming some what over bought now that the RSI is over 70. The next area of resistance is around 88.57 and 89.28, while 1st support hits today at 86.91 and below there at 85.94.

EURO (DEC): The sell-off took the market to a new contract low. The daily stochastics have crossed over up which is a bullish indication. The stochastics indicators are rising from oversold levels, which is bullishand should support higher prices. The market's close below the 9-day moving average is an indication the short term trend remains negative. It is a slightly negative indicator that the close was lower than the pivot swing number. The near-term upside objective is at 126.90. Selling may soon dry up since the RSI is under 20 indicating the market is extremely oversold. The next area of resistance is around 126.14 and 126.90, while 1st support hitstoday at 124.28 and below there at 123.19.

JAPANESE YEN (DEC): The market made a new contract high on the rally. Momentum studies are trending higher but have entered overbought levels. The market's short-term trend is positive on the close abovethe 9-day moving average. The gap up move on the day session chart is a bullish indicator for trend. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next upside target is 106.90. The 9-day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around 106.90 and 106.90, while 1st support hits today at 106.90 and below there at 106.90.

SWISS (DEC): The crossover up in the daily stochastics is a bullish signal. Rising from oversold levels, daily momentum studies would support higher prices, especially on a close above resistance. The close below the 9-day moving average is a negative short-term indicator for trend. A positive setup occurred with the close over the 1st swing resistance. The next upside objective is 87.31. The next area of resistance is around 86.94 and 87.31, while 1st support hits today at 86.22 and below there at 85.88.