04-Nov 2008

CURRENCIES COMMENTARY

A temporary lull in global recession fears because of the election

Upcoming International Reports
11/04 Swiss Consumer Price Index
11/04 German Retail Sales
11/05 German Service PMI
11/05 UK CIPS/NTC Research Services
11/05 UK Industrial Production
11/05 Euro-zone Retail Trade
11/05 Japan BOJ Minutes
11/05 Japan Leading Indicators
11/06 UK Halifax Housing Price Index
11/06 German Manufacturing Orders Received
11/06 UK Monetary Policy
11/06 Euro-zone Monetary Policy
11/06 Canadian Building Permits
11/07 Swiss Employment
11/07 German Foreign Trade
11/07 France Trade Balance
11/07 Euro-zone ECRI Future Inflation Gauge
11/07 France ECRI Future Inflation Gauge
11/07 Germany ECRI Future Inflation Gauge
11/07 UK ECRI Future Inflation Gauge
11/07 German Industrial Production
11/07 Canadian Labor Force Survey
11/09 Japan Machinery Orders
11/10 France Industrial Production
11/10 UK Producer Price Index
11/10 Canadian New Housing Price Index
11/10 German Manufacturing Turnover Index


DOLLAR: While the Dollar did manage another new high for the move early today, the Dollar has reversed course in the wake of strength in global equity markets. With the US equity markets apparently poised to discount the threat of more severe US slowing ahead and the markets in general anticipating a series of global interest rate cuts in the coming sessions, we can understand a temporary downgrading of the flight to quality status in the Dollar. In fact, it is possible that the December Dollar index will fall to close-in support of 85.50 in the face of the election. We suspect that a large portion of the world is so fed up with US acrimony that merely getting beyond the election without a protracted court battle will be seen as a positive for the global economy. At least in the near term, the threat of financial sector turmoil and severe slowing will be discounted and that could possibly send the Dollar temporarily below initial support to even lower support on the charts down at 84.95.

EURO: Apparently a large portion of the foreign press is pontificating that an Obama victory will be welcomed, which means those members of the press have already forgotten the miserable performance of the US Congress in the face of the urgent bailout package. For the time being, we suspect that the market will anticipate calm and that could allow for a temporary bounce back toward the 130 level in the December Euro. In fact, with a series of international rate cuts expected later this week, it is possible that the Euro will forge a rise to at least 131.14. In the event that something technical breaks down in the US election process, it is even possible that the Euro could forge a temporary return to the October 30th spike high zone of 132.77. In the end, we seriously doubt that the Euro is set to make a sustained upside run, as the threat of a severe global recession will remain in place and it is entirely premature to suggest that the financial sector turmoil is going to remain under control.

YEN: As in the Dollar, the Yen is apparently facing a temporary calming of extreme anxiety and that could allow for a temporary slide back into the 100 to 98.00 zone. Up trend channel support off the August through October time frame would seem to allow for at least at temporary slide down to 98.10 but perhaps to only 98.24 on Wednesday.

SWISS: With another new low for the move overnight it would seem like the Swiss won't even garner a temporary flow of short covering action in the wake of a let down in the Dollar. In fact, even in the face of weakness in the Dollar and the yen, the Swiss remains ultra weak and therefore traders shouldn't expect the December Swiss to sustain a rally back above the 86.00 level for any extended period of time.

POUND: Disconcerting retail data from the UK seems to leave the Pound entrenched in a downward pattern on the charts, even though the trade is expecting the BOE to make a move to lower rates later this week. However, the December Pound could still forge a recovery bounce to 163.19 which is a down trend channel resistance line today but that line falls to only 162.15 on Wednesday.

CANADIAN DOLLAR: With another new high for the move in the Canadian overnight, it would seem like the Canadian is benefiting from the euphoria being seen in global equity markets. Therefore one can't rule out some additional follow through buying for the coming 24 hours. In fact, given the markets posture it is possible that the December Canadian will attempt to climb above the October 20th high of 85.25. In the end, the market can act like everything is set to improve.

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) 11/04/2008: Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. The market's short-term trend is positive on the close above the 9-day moving average. The market has a slightly positive tilt with the close over the swing pivot. The next downside objective is now at 85.00. The next area of resistance is around 87.78 and 88.30, while 1st support hits today at 86.14 and below there at 85.00.

EURO (DEC) 11/04/2008: The stochastics indicators are rising from oversold levels, which is bullish and should support higher prices. A negative signal for trend short-term was given on a close under the 9-bar moving average. The outside day down is somewhat negative. The close below the 2nd swing support number puts the market on the defensive. The near-term upside objective is at 128.47. The next area of resistance is around 127.04 and 128.47, while 1st support hits today at 125.14 and below there at 124.66.

JAPANESE YEN (DEC) 11/04/2008: Declining momentum studies in the neutral zone will tend to reinforce lower price action. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The outside day down is a negative signal. The market is in a bearish position with the close below the 2nd swing support number. The next downside objective is 100.59. The next area of resistance is around 101.46 and 101.94, while 1st support hits today at 100.78 and below there at 100.59.

SWISS (DEC) 11/04/2008: A crossover down in the daily stochastics is a bearish signal. Daily stochastics are trending lower but have declined into oversold territory. The close below the 9-day moving average is a negative short-term indicator for trend. The close below the 2nd swing support number puts the market on the defensive. The next downside target is 84.38. The next area of resistance is around 85.84 and 86.71, while 1st support hits today at 84.68 and below there at 84.38.