30-Oct 2008

CURRENCIES COMMENTARY

Ongoing weakness in the Dollar expected today

Upcoming International Reports
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 2:30 AM11/03 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
11/04 Swiss Consumer Price Index
11/04 German Retail Sales

DOLLAR: With global macro economic anxiety still generally on the decline and global equity prices extending recent strength, it is not surprising to see the Dollar continue to liquidate. Apparently a flow of "better" employment readings from Germany overnight adds to the Dollar weakness and we suspect that the US number flow later this morning will add to the downside tilt. However, the December Dollar index might have found fairly solid support atthe 84.00 level, especially if US equity markets fail to maintain a positive track in the morning trade. In the near term, we would expect the bear camp to retain a slight edge as the Dollar balances the overbought condition brought on by the sharp run up in the Dollar in the month of October. On the other hand, once the euphoria of the latest round of US rate cuts dies down and equity markets begin to bank profits ahead of week and month ends,we suspect that the Dollar will begin to show signs of support at or above the 84.00 level. While we doubt that theDollar will be greatly influenced by the US GDP readings this morning, seeing the readings decline by more than1% could actually lend some support to the Dollar!

EURO: While Euro zone Consumer Confidence hit another new low, the Euro seems to be more interested in the slightly better German employment numbers. It is also possible that a large measure of the gains in the Euro over the last two trading sessions have been technical short covering gains and not fresh outright buying. However,despite continuing calls for coordinated global rate cuts, the ECB seems to be content to be the last to cut rates and that could eventually put the Euro back into a hard downward movement on the charts. For the near term, the euphoria being thrown off by positive action in the global equity markets looks to leave the Euro bulls with a veryslight advantage. However, the December Euro would seem to have thick overhead resistance on the charts up at132.70 and in the event that equity prices falter, we suspect that the upward motion in the Euro will be quickly reversed.

YEN: Up trend channel support today is seen at 100.22 in the December yen and with global equity markets managing some follow through gains, we suspect that the Yen bears will be able to retain a minor edge early inthe trade today. In fact, Yen traders might watch for a slide back below 938.70 in the December S&P as a decline back below that level could signal an impending recovery in the Yen. At least initially, the Yen remains in aliquidation mode but the action in the stock market should ultimately be the main focal point.

SWISS: The short covering impetus in the Swiss should be close to running its course. In fact, unless the stock markets manage another big up move today, we suspect that the overnight high in the Swiss of 89.31 could besolid resistance. However, traders need to watch the flow of US data closely today as another "not as bad as expected" reading could give the Swiss another day of gains and a possible shot at a retest of the 90.00 level.

POUND: The Pound action is all about short covering and the current lack of flight to quality anxiety. In fact, with another UK Nation wide Housing Price index decline overnight, it is clear that economic conditions inside the UK continue to weaken and that in turn suggests that the Pound gains are technical in nature and are primarily a knee-jerk reaction to profit taking in the Dollar. However, one can't rule out a slight upside extension today in theface of initial equity market optimism. The next resistance zone in the December Pound is 166.80.

CANADIAN DOLLAR: With macro economic optimism still generally in place, the Canadian extensive and historically oversold, it is not surprising to see the Canadian forging more gains today. In fact, with the US stockmarket showing ongoing strength and the residual from the US rate cut move keeping global slowing fears in check, it is possible that the December Canadian will make a run toward the next resistance zone on the chartsup at 85.25.

TODAY'S MARKET IDEAS:
None.

NEW RECOMMENDATIONS:
None.

PREVIOUS RECOMMENDATIONS:
1) Long December Dollar 84 puts 99, use an objective of 210. Risk to a close below 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 netloss in excess of $1,000. *Hit objective on the initial short futures 92.30, which more than finances the long callplay. **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): A bearish signal was triggered on a crossover down in the daily stochastics. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The defensive setup, with the close under the 2nd swing support, could cause some earlyweakness. The next downside target is now at 83.61. The next area of resistance is around 86.19 and 87.66, while 1st support hits today at 84.17 and below there at 83.61.

EURO (DEC): Daily momentum studies are on the rise from low levels and should accelerate a move higher on a push through the 1st swing resistance. The market's close below the 9-day moving average is anindication the short-term trend remains negative. The gap up on the day session chart gave a bullish indicator andmore follow through could be seen this session. 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 130.87. The next area of resistance is around 129.57 and 130.87, while 1st support hits today at127.13 and below there at 126.00.

JAPANESE YEN (DEC): Momentum studies trending lower from overbought levels is a bearishindicator and would tend to reinforce lower price action. The market's short-term trend is positive on the closeabove the 9-day moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside objective is 101.92. The next area of resistance is around 103.84 and 104.52, while1st support hits today at 102.54 and below there at 101.92.

JAPANESE YEN (DEC): Momentum studies trending lower from overbought levels is a bearish indicator and would tend to reinforce lower price action. The market's short-term trend is positive on the close above the 9-day moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside objective is 101.92. The next area of resistance is around 103.84 and 104.52, while1st support hits today at 102.54 and below there at 101.92.

SWISS (DEC): Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The intermediate trend could be turning up with the close back abovethe 18-day moving average. If yesterday's gap higher on the day session chart holds, additional buying could develop this session. There could be more upside follow through since the market closed above the 2nd swing resistance. The next upside objective is 89.74. The next area of resistance is around 88.98 and 89.74, while 1st support hits today at 87.24 and below there at 86.25.