09-Oct 2008

CURRENCIES COMMENTARY

Expect the Yen & Swiss to become primary flight to quality issues

Upcoming International Reports (all times CT)
10/09 German Foreign Trade 1:00 AM
10/09 UK Foreign Trade 3:30 AM
10/09 UK Monetary Policy 6:00 AM
10/09 Japan BOJ Minutes 6:50 PM
10/09 German Manufacturing Turnover Index
10/10 Swiss Employment 12:45 AM
10/10 France Industrial Production 1:45 AM
10/10 Canadian Labor Force Survey 6:00 AM
10/10 Canadian International Merchandise Trade 7:30 AM
10/10 Canadian New Housing Price Index 7:30 AM
10/13 UK Producer Price Index 3:30 AM
10/13 Japan Wholesale Prices (CGPI) 6:50 PM

DOLLAR: There would seem to be a major fundamental and technical shift taking place in the US Dollar action this morning. In fact, with soaring global slowing concerns seen overnight, one would have expected the US Dollar to have exploded into new high ground this morning. While some might claim the rate cuts from the US reduce the slowing threat in the US, we ultimately think that the moves were too little, too late. In fact, if there is a failure of confidence toward the Dollar after the move to reduce rates, that could bring the US economic situation to a drastic junction. We suggest that traders look to purchase far out of the money put options on the Dollar Index this morning as a loss of confidence in the Dollar could feed on itself and in turn make almost everything worse for the US. Traders should look to the November Dollar index puts this morning as that will give a look at the short side of the Dollar, but in turn that strategy can somewhat define the risk of the play. If the Dollar isn't strong, Treasuries won't be seen as a flight to quality instrument and that in turn could prompt even more international money to migrate away from the Greenback. In the short term, it is possible that other than the yen, the most likely flight to quality currency might be the Swiss.

EURO: Certainly the Euro might rally somewhat in the face of the latest deterioration in the Asian markets and certainly the Euro might catch an added lift in the face of serious financial ramifications in the US session, but it is unclear whether the Euro zone will be able to keep itself out of a chain reaction financial sector failure. However, in the near term a mass exodus from the Dollar could funnel some capital temporarily toward the Euro, but it is possible that the trade simply avoids the US Dollar and the Euro and moves toward the Swiss and the Yen.

YEN: The Yen for the time being is being seen as the primary currency flight to quality instrument. In fact, until the Yen reaches up to the March highs of 104.65 we doubt that the up trend will run out of fuel. The biggest concern for the yen is what happens after the money flows in, as the BOJ isn't thought to have any gas pedal left on the interest rate cut front.

SWISS: With the US Treasuries getting only partial flight to quality interest and gold starting to see historical inflows, it is clear that we are approaching a once in a lifetime global economic threat and that in turn should begin to push money toward the Swiss. Traders should look to November Swiss 93 calls at the market this morning, as a risk controlled way to look at the long side of the Swiss.

POUND: After an attempt to rally overnight the trade seems to have come to the conclusion that the UK isn't the place to be. In fact, the rally and failure in the Pound comes after UK officials made a move to contain the crisis and that in turn would seem to put the UK economy in the same condition as the US economy. We suspect that the Pound is now poised to fall to the lowest level since 2005.

CANADIAN DOLLAR: A big range down extension in the Canadian clearly suggests that the Commodity drag and the drag from the US situation are factors that are set up to deflate the Canadian Dollar even more significantly directly ahead. In fact, it wouldn't be out of the question for the Canadian to fall down to the 85.00 level in the coming weeks.

TODAY'S MARKET IDEAS:
None.

NEW RECOMMENDATIONS:
Buy the November Swiss 93 calls at the market this morning.

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. *Re-Sell Dec Canadian again at 93.54. 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) 10/08/2008: Momentum studies are trending higher but have entered overbought levels. The market's short-term trend is positive on the close above the 9-day moving average. The market setup is somewhat negative with the close under the 1st swing support. The next upside objective is 82.46. The next area of resistance is around 81.86 and 82.46, while 1st support hits today at 80.76 and below there at 80.24.

EURO (DEC) 10/08/2008: Daily stochastics declining into oversold territory suggest the selling may be drying up soon. A negative signal for trend short-term was given on a close under the 9-bar moving average. A positive setup occurred with the close over the 1st swing resistance. The next downside target is now at 134.99. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 137.32 and 138.18, while 1st support hits today at 135.72 and below there at 134.99.

JAPANESE YEN (DEC) 10/08/2008: Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. A positive signal for trend short-term was given on a close over the 9-bar moving average. The market tilt is slightly negative with the close under the pivot. The next upside objective is 99.84. The next area of resistance is around 99.58 and 99.84, while 1st support hits today at 98.56 and below there at 97.79.

SWISS (DEC) 10/08/2008: Momentum studies are declining, but have fallen to oversold levels. The close below the 9-day moving average is a negative short-term indicator for trend. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next downside objective is now at 87.73. The next area of resistance is around 88.55 and 88.73, while 1st support hits today at 88.06 and below there at 87.73.