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DOLLAR: With the March Dollar Index closing below the 78.00 level yesterday and the Greenback tracking lower initially this morning it would appear as if interest in riskier instruments remains in place. We also think that the trade has temporarily lost respect for the US economy and in turn has temporarily lost its expectation that US rates are going to rise anytime soon. Therefore, the path of least resistance is pointing downward in the Dollar and it may continue to point lower until there is a distinctly strong US economic reading, or perhaps some surprise international flight to quality development. It is also likely that the overbought technical position of the Dollar is contributing to the weakness this morning, as the most recent COT report put the “combined” spec and fund Net Long position in US Dollar at new record level of 41,167 contracts. Therefore, the Dollar was clearly overbought technically and perhaps a bit overdone fundamentally around the recent highs and that could clear the way for a temporary slide. However, we suspect that the big down trend pattern in the Dollar has ended and that traders will eventually see a resilient Dollar trade ahead. In fact, in the early going today, the market clearly rejected the 77.39 level in a rather definitive fashion.
EURO: Like the Dollar, the Euro seems to be garnering a large portion of its action from technical balancing influences, instead of classic fundamental issues. Nonetheless, the Euro did see a “combined” spec and fund position that was net short 20,513 contracts as of early last week and therefore the sharp bounce off the 1.4250 level isn’t that surprising. In looking at the flow of euro zone economic data, there doesn’t appear to be a classic fundamental reason to consistently push up the Euro, but given ongoing economic euphoria in the equity markets, it is possible that the Euro will see some risk orientated buying. However, while the German jobless situation seemed to improve in December, we just don’t see the economic condition in the Euro zone as an attraction for capital. At least in the short term, the bulls look to have an edge, with a temporary move back above 1.45 possible, before the prowess of the US economy regains the upper hand later this week.
YEN: With a weaker Dollar seen over the last two trading sessions and the US Fed reiterating the need to leave interest rates down, the carry traders are emboldened again. However, we would see a return to levels above 109.50 as an opportunity to get short the Yen at a higher level, as recovery is ahead and eventually the carry trade will be unwound. With the magnitude of the November through December washout simply massive in size, the first retracement point of the break in the March Yen was all the way up at 111.35, but we doubt that the market will see that much of a sustained recovery ahead. Let the market bounce a little before adding or implementing fresh long term short side plays.
SWISS: In the March Swiss, a normal retracement of the November through December slide would seem to allow for a recovery bounce back to 97.30 this morning without even altering the downtrend pattern. The 50% retracement level for the Swiss is now seen up at 97.94 and a close above that level would get our attention and cause us to doubt our longer term bearish view toward the currency. However, as in other currencies, temporary weakness in the Dollar allows for some short covering in non Dollar currencies.
POUND: The Pound clearly lost its bullish momentum in the prior trading session and with the range down washout action this morning, it is clear that the fear of the UK debt load is once again behind the weakness in the Pound. A close below 1.60 today could project a further slide down to 1.5912 in the coming trading sessions. In short, the inability to hold up in the face of an early Dollar slide really highlights the Pound as one of the weakest currencies.
CANADIAN DOLLAR: While the Canadian remains poised just under its recent highs, we think that the Canadian needs a bit of a perfect macro economic storm just to continue to rise toward the 98.00 level. In other words, the Canadian needs a weaker Dollar, up beat macro economic sentiment and perhaps even noted ongoing gains in equity markets to catch what we would call a further recovery wave of buying. The path of least resistance looks to be pointing upward, but further gains might be difficult to engineer and the risk to longs has risen.
TODAY’S MARKET IDEAS: Temporary technical balancing in the Dollar provides a temporary rally window for the Yen, Euro and Swiss.
Currency Market Commentary – 2010.01.05
by Dave Hightower on January 5, 2010
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
DOLLAR: With the March Dollar Index closing below the 78.00 level yesterday and the Greenback tracking lower initially this morning it would appear as if interest in riskier instruments remains in place. We also think that the trade has temporarily lost respect for the US economy and in turn has temporarily lost its expectation that US rates are going to rise anytime soon. Therefore, the path of least resistance is pointing downward in the Dollar and it may continue to point lower until there is a distinctly strong US economic reading, or perhaps some surprise international flight to quality development. It is also likely that the overbought technical position of the Dollar is contributing to the weakness this morning, as the most recent COT report put the “combined” spec and fund Net Long position in US Dollar at new record level of 41,167 contracts. Therefore, the Dollar was clearly overbought technically and perhaps a bit overdone fundamentally around the recent highs and that could clear the way for a temporary slide. However, we suspect that the big down trend pattern in the Dollar has ended and that traders will eventually see a resilient Dollar trade ahead. In fact, in the early going today, the market clearly rejected the 77.39 level in a rather definitive fashion.
EURO: Like the Dollar, the Euro seems to be garnering a large portion of its action from technical balancing influences, instead of classic fundamental issues. Nonetheless, the Euro did see a “combined” spec and fund position that was net short 20,513 contracts as of early last week and therefore the sharp bounce off the 1.4250 level isn’t that surprising. In looking at the flow of euro zone economic data, there doesn’t appear to be a classic fundamental reason to consistently push up the Euro, but given ongoing economic euphoria in the equity markets, it is possible that the Euro will see some risk orientated buying. However, while the German jobless situation seemed to improve in December, we just don’t see the economic condition in the Euro zone as an attraction for capital. At least in the short term, the bulls look to have an edge, with a temporary move back above 1.45 possible, before the prowess of the US economy regains the upper hand later this week.
YEN: With a weaker Dollar seen over the last two trading sessions and the US Fed reiterating the need to leave interest rates down, the carry traders are emboldened again. However, we would see a return to levels above 109.50 as an opportunity to get short the Yen at a higher level, as recovery is ahead and eventually the carry trade will be unwound. With the magnitude of the November through December washout simply massive in size, the first retracement point of the break in the March Yen was all the way up at 111.35, but we doubt that the market will see that much of a sustained recovery ahead. Let the market bounce a little before adding or implementing fresh long term short side plays.
SWISS: In the March Swiss, a normal retracement of the November through December slide would seem to allow for a recovery bounce back to 97.30 this morning without even altering the downtrend pattern. The 50% retracement level for the Swiss is now seen up at 97.94 and a close above that level would get our attention and cause us to doubt our longer term bearish view toward the currency. However, as in other currencies, temporary weakness in the Dollar allows for some short covering in non Dollar currencies.
POUND: The Pound clearly lost its bullish momentum in the prior trading session and with the range down washout action this morning, it is clear that the fear of the UK debt load is once again behind the weakness in the Pound. A close below 1.60 today could project a further slide down to 1.5912 in the coming trading sessions. In short, the inability to hold up in the face of an early Dollar slide really highlights the Pound as one of the weakest currencies.
CANADIAN DOLLAR: While the Canadian remains poised just under its recent highs, we think that the Canadian needs a bit of a perfect macro economic storm just to continue to rise toward the 98.00 level. In other words, the Canadian needs a weaker Dollar, up beat macro economic sentiment and perhaps even noted ongoing gains in equity markets to catch what we would call a further recovery wave of buying. The path of least resistance looks to be pointing upward, but further gains might be difficult to engineer and the risk to longs has risen.
TODAY’S MARKET IDEAS: Temporary technical balancing in the Dollar provides a temporary rally window for the Yen, Euro and Swiss.
Tags: Canadian, Currencies, Dollar, Financials, FOREX, Pound, Swiss, Yen
About Dave Hightower