World Currency Watch: FOREX Market, FOREX Trading BLOG

If the economy is doing so good, why are the transports making a 52 week low?

The stock market dove yesterday and closed below 13,000. More importantly the Dow transports made a 52 week low yesterday. So for those who believe the economy is in such great shape...why are the Dow transports making a new 52 week low?

I believe it's because the big mutual funds/hedge funds don't believe that junk and that's why they are voting by selling stocks. When economies are fine, transports aren't making new lows.

Now if the Dow Jones Industrials break lower also, it's not going to be pretty for stocks. If stocks don't do well and recover...then the carry trade won't either. Then the JPY will be the best protection for a falling stock portfolio.

EUR/USD consolidates into a triangle pattern.

See the triangle pattern below. EUR/USD should break out of it in the upcoming days to week or so. The break should go 250 + pips once it finally breaks out. Knowing this, it means that USD/CHF will have an opposite effect. These two pairs tend to trade somewhat inversely.

Dow down 213, trading below 13,000!

So far the Dow trading down on the day is boosting the yen against the carry trades. So it's bringing EUR/JPY, GBP/JPY, NZD/JPY, etc. down as stated earlier.

The Swiss franc has been affected some  but those carry trades (EUR/CHF, etc.) haven't been as affected as have the yen crosses.

See if the Dow closes below 13,000. If so, that won't be good for the carry trade. Then watch to see if it carries over into Asia with the Nikkei falling. If so, you could see more carry trade liquidation.

Sean Hyman
Currency Director
The Sovereign Society

Holiday volume

Remember that most big interbank traders take off on Thursday and Friday if not earlier. So given that these huge pools of liquidity will not be present in the market, it means that the market could be more easily moved during those times.

 

Translation: There could be some out of the ordinary volatility on those days IF traders choose to hop in and trade a lot during those days. So if this happens (because some years it does and some years it doesn’t), just know it’s because of the holiday.

 

Sean Hyman

More central bank talk

China announced today they support a strong "U.S. dollar". So we'll see if they back it up by not pulling out of the dollar even more. Their comments can be very fickle, so we'll see in the upcoming months if they mean it or not.

Also, see these comments below from the Bank of Canada:

Bank of Canada Governor David Dodge raised the possibility of cutting interest rates because of rising ``risks'' to global growth.

``Risks are clearly higher than what we thought four weeks ago,'' Dodge said at a meeting of central bankers in Cape Town today. There is a ``lot of volatility in currencies in the last couple of weeks. These are going to contribute additional pressures. We are all a little bit more worried.''S

So at this point we've got Aussie claiming more rate hikes may come.
Trichet has said their could  be another hike for the Euro. However, so far it's been just talk.
The U.S. is cutting rates at this point so far.
Canada is talking about cutting rates.
The Bank of England (GBP) is talking about cutting rates in 2008.

Remember that money tends to go away from those cutting rates and towards those raising rates (in general and over time).

Sean Hyman
Currency Director
www.money-trader.com

Carry trades could unwind further this morning.

U.S. stock futures are down this morning following a sell off in both Asia and Europe. Matter of fact, Citigroup got downgraded to a Sell rating from Goldman Sachs this morning. Those are stiff words folks.

On top of this, some of the leaders are quoted lower as of this writing also: RIMM, AAPL, GOOG

If this happens, then look for EUR/JPY, GBP/JPY, NZD/JPY, etc. to sell off along with stocks as people unwind carry trade positions which forces them to buy back the yen they sold for the carry trade purchases.

Since the dollar has been so beaten down and central bankers want it to finally go up so badly, it may not fall as quickly against the yen as do the others.

Also, EUR/CHF is right on its daily trend line, so watch to see if this holds or breaks.

Watch to see how the U.S. dollar responds to the Housing data out at 1pm EST today. It's one of the only pieces of data out for the dollar today. Also, we know that one of the Fed's biggest concerns right now is the slowdown in housing. (By the way, it's not just average joe's with bad credit that are in a tough housing situation right now...Michael Jackson just got refinancing on his "Neverland Ranch". He now owes more on it than it's worth. Oh by the way, it's like a 22-23 million dollar loan. While I doubt the Fed is concerned about that part (haha), I thought you might find it interesting.

EUR/USD consolidates and prepares for a breakout

The EUR/USD has spent quite a bit of time consolidating into a triangular sideways pattern. Look for the pattern to break to one side or the other in the near term. The break should be quite substantial once it finally breaks outside of the pattern.

With Trichet calling the Euro exchange rate "unfavorable" and "brutal", you know where his vote lies. He wants it to go downward.

On the other hand, Paulson is in Africa today with the top 20 industrialized nations. The topics: currencies, oil and inflation

You can bet that the dollar will be at the top of the discussion. For it's in everyone's best interest to see the dollar recover. Some countries exports are getting hurt with the dollar slide. Others are getting hurt due to "un-due" inflation hitting their economy all due to the dollar's fall.

Then of course, here in America, the "fall of the dollar" reduces our purchasing power. So these central banks want the dollar to go up.

So the question is, "Do the central banks get their wishes or does the market continue to rule and push against them?

Sean Hyman
www.money-trader.com

Gold drops over $28 intraday!

Gold's drop of more than $28 an ounce today has really underpinned the U.S. dollar. It's helping to put in a floor as of this writing.

USD/CHF is finding support around 1.1200 right now. If this theme keeps up, look for a bounce upward in the pair.

The Dollar comforted by inline CPI numbers

Well, the U.S. dollar was comforted by the in line  CPI numbers. So far it's headed higher.

So if you're looking for a dollar rally in the short term, look for it against the Pound before you look for it against the Euro.

For instance, the EUR/GBP pair has been very strong which shows the stronger Euro over the weaker Pound.
So if you feel the dollar comes out on top and gains strength,  be sure to "pair" it with something weaker.

Quick note before U.S. CPI comes out...

Formerly, Fed Chairman Bernanke looked mainly at the Core CPI and not overall inflation which included food and energy.

In a recent speech that told about changes being made at the Fed...this was one of them. They will be considering all of the CPI components now.

The food and energy components have been "hot" recently. So if they consider that now, it could be short term bullish for the dollar. However, let's see if they make their numbers first.