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Archive for August, 2009

End of week Dollar movement…interesting

So, last week Job numbers for the US were released. It was a big announcement. No one can ever really be sure what these figures will turn out to be, but we often have indicators that experts can look to. In this case, the figures came out substantially better than most people thought they would be. Hurray for the US economy! It means that, though job losses continue (number of unemployed still at 9.4% nationwide), the rate of loss is considerably slower. That, in this nasty climate, is good news.

What was interesting was the way the Forex Market – well, the Dollar – reacted to the news. The set up was the same as it has been during this crisis. If the figures are about what people expect, then the current trend of dollar would continue, with no fundamental boost, positive or negative. If the figures were better, then that would be a bullish sign for the economy. That would mean a move away from safety; a move to higher yielding currencies i.e. a move away from the Dollar. If the figures were bad, then the dollar would gain strength. Simple.

Not!! We had really good figures (relatively speaking). I, along with most other traders, looked at our charts expecting losses in the dollar. We instead found a strong dollar. The dollar gained on all the other majors. Also, the dollar gained on the Yen. In the past we have seen that when there are bullish signs, the dollar loses against everyone else but gains against the Yen. When things are bearish, the dollar gains on everyone else but loses against the Yen. One can infer that the Yen is even more of a safety play than the Dollar. So, when the Dollar gains on the Yen AND everyone else, in a substantial move, it is safe to say that it based mostly on Dollar strength.

It is baffling. Suddenly, traders think that bullish signs in the US economy should impact the dollar positively? Why now? Why should there be a shift from the risk trade to fundamental? It is suspicious.
Though the move was major(ish), the trend against the dollar is not broken yet. More will have to happen for the Greenback for the bias to change. In any case, We will have to see what happens this week.

The trend is (still) your friend

When the markets become as they have been lately, traders get frustrated. Ranges can test the patience of even the most disciplined of us, and make us do the silliest things. We can often try to impose our will on the charts. “Up! Up!!” like that’s going to make a difference. With all of this going on, it can be easy to lose sight of what is going on in the background. This is current chart of the EUR/USD Forex Pair:

Forex Chart Aug 02

What can we see? We were in an uptrend on this currency pair from a few months ago. While that trend has stalled somewhat, it has not been broken completely, from a technical perspective. The occurences last week have also helped to reinforce the bias, which is still up. The 50-Day moving average has finally caught up with the current price (it has been moving upwards) and the price has bounced off of it. There was also considerable volume behind the move as well, so that’s pretty powerful. The news has seemed to be doing all the market moving, but that’s no reason to ignore the technicals. We could be well on the way out of this range now.

This week, there is a ton of news coming out, in addition to the 3 interest rate decisions for this week (Australia, Europe and Britain). It’s going to be another week of paying close attention to the news to get a general feel for the state of the economies and mood of investors. That said, we are still bearish the US Dollar at the moment, as more risk comes back into the markets. There indications that the news might be getting better as well. The IMF did not help the dollar either last week, by claiming that it is over-valued. It’s not looking good for the Greenback.

There are a few things to note though. The Kiwis are not particularly keen to see their currency gain strength excessively. They may intervene, so I would be careful about that one. Also, Britain is still suffering. That’s one place where the revelations are not so encouraging. The Government might still have to engage in more quantitative easing. The currency popped up last week against the dollar, but that was mostly due to dollar weakness. If things don’t pick up, the pound might start moving decisively in a different direction from the Euro, which is doing just fine.

Look for the dollar to continue losing steam this week, baring some horrible, cataclysmic event. We have had a few of those though, so tread softly…

Happy Trading

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