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Smoke And Mirrors Of The Market

Discussion in 'Forex Daily News & Outlook' started by mercaforex, Nov 11, 2009.

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
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    By Mercaforex

    The USD dollar moved in a rather stagnant fashion on Tuesday as traders essentially showed caution mirroring the returns from Wall Street. There was little in the way of data yesterday except for a couple of policy speeches by Federal Reserve members who spoke about the health of the American economy and regulatory policy. Today is a holiday in the U.S. and because of this volume on the currency front may be rather light as the day progresses and trading drops off. Wall Street will be open for trading but banks are essentially shuttered. Tomorrow the weekly Unemployment Claims figures will be released and they are projected to come in around last week’s outcome.
    Regulatory reform of the banking system being discussed was the highlight of yesterday’s news. Financial institutions are undergoing a microscopic examination from the government and a broad range of opinions are being heard. The question becomes what will the end result of all these initiatives and conversations be? In the meantime there appears to be a lot of talk, but specifics seem to be in short supply. Also the consequences of new government agencies that are supposed to be safe guarding the financial system may produce unexpected hurdles for businesses to function adequately. There is a long way to go before the government initiatives become full throttled mandates but investors will nevertheless keep their eyes on these developments. The equity markets will likely continue to be at the forefront of trading sentiment today and with the banking holiday in effect the markets may prove rather tricky and divergent.

    The EUR essentially proved once again yesterday that although it maintains a rather high value against the USD it is not particularly trading at these levels because of its own economic health. While the EUR was able to grasp at the very highs of its strong range versus the greenback, the data coming from the European Union was less than stellar. Inflation numbers showed that the continent is still not under any duress from this barometer and in fact is still dangerously close to deflationary results. The WPI reading from Germany came in at minus -0.4%, below the estimated gain of 0.2%. French and Italian Industrial Production numbers were negative on Tuesday. Also the ZEW Economic Sentiment reading from Germany proved disappointing with an outcome of 51.1, much worse than the projected reading of 55.2. Nevertheless the EUR continues its strong range and whether or not this is being done with smoke and mirrors may not be the point any longer. It will be a quiet day of data from Europe and tomorrow the broad Industrial Production statistics will be published. The EUR is maintaining its strong stance even with contradictory economic reports. Because of today’s holiday in the States, we may see the EUR continue its rather high valued stance.

    The Sterling continued to climb against the USD on Tuesday and did so even as Trade Balance numbers came in below expectations. The U.K. is still clearly within a recession and its economic data has not been resoundingly positive, but the GBP has been able to enjoy a rather good range against the greenback. The U.K. will publish its Bank of England Inflationary Report today and Governor Mervyn King will speak. It is very likely that the BoE leader will signal that the U.K. is still battling the day to day aspects of the global downturn and the economy faces a tough road ahead. It will be interesting to see how much he focuses in on inflation compared to deflation. As Europe highlighted yesterday, inflation is still largely absent from the economic equation but Central Banks and politicians are loathe to discuss the perils of deflation. Instead what Central Banks have done is focus on stability and this is where BoE Governor King is likely to steer his words today. The Sterling is now at the high end of its range against the USD.

    As international equity markets turned in a rather quiet day, so did the JPY compared to the USD. With the advent of today’s holiday in the States the JPY may find that it once again faces a day of rather consolidated trading. The bigger question for the JPY is how long can the Japanese economy maintain such a strong JPY when many of its important companies rely on exports for their economic health and growth. Today’s trading should be rather sporadic for the JPY and may prove rather illiquid.

    A Speculator’s Bubble On The Horizon

    A lackluster day for the USD kept the American equity market from bursting higher. Yesterday’s trading may signal that sellers do not want this market to break past 1100 again. The seller’s strategy may be to regroup around these levels, and battle the buyers back to their trenches. In all likelihood we will fill the gap created yesterday, sometime over the course of the week. However, remember that the bears have been the weaker side for a long time now, and they might need to recruit more soldiers before they will truly be able to dominate the bulls. At the moment, the market is still strong and we have to trade it as such. Support 1087.4, 1081.5, 1077, 1071.5.1059.3 1052.4, 1045.5, 1029.4, 1019.6, 1009.1, 992.25 Resistance 1096.42, 1095.8, 1101.4, 1132.2, 1153.8

    Take a look at the weekly chart. I have added an overlay of the silver market. Study this chart. What do you see? Well it’s obvious that in 2008 when Gold made all time highs, so did silver. The XAU hit 1032, and XAG hit 21.34. More than one year later and Gold is breaking record highs over and over, and yet silver is trading about $4 lower than its previous all time high. Also, I would like to point out that crude oil is well off its highs as well. What does this mean for us? As technical traders we have to consider the situation and try and analyze it in a way that will make us money. While XAU/USD continues to show strength, and I will continue trading it on the long side, I am suggesting that this market may be a speculators bubble. Either, the other markets will drag gold back down to reasonable levels, or Gold will continue to push higher, and world markets will begin to crumble. For our sake let hope it’s the former. Support 1104.5, 1100, 1094.7, 1092.87, 1087.65, 1082.46, 1078.37, 1070.6, 1066.1, 1051.3, 1046.7 Resistance 1103.5, 1111.14, 1117.32….

    Yesterday’s buying tail allowed us to close just above support. This is significant for as its hinting that this market may want to test the upper end of the range before trading lower. Possible trade entry will be anywhere around the 1.6741 level. Be cautious trading before the BOE announces its inflation report, because even though it seems this market already knows what will happen, the wording could really skew trading sentiment. Support 1.6741, 1.6636, 1.6600, 1.6485, 1.6249, 1.6119, 1.5776 Resistance 1.6842, 1.7042

    A floundering Greenback is allowing the Euro to push higher and test 1.5062. I like the way this currency pair has been trading over the last couple of months, and it’s looking like a push past its previous highs is definitely in the cards. In all likelihood we will trade past this level, and only start to consolidate around the 1.5280 price range. Upside potential is large, and if the USD continues to fail, then I will not be surprised to see the euro trading at 1.60 in the near future. Support 1.4967, 1.4918, 1.4810, 1.4701 Resistance 1.5020, 1.5062, 1.5144, 1.5284, 1.5343, 1.5462

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