Sell the dollar. If the fed and the treasury is just trying to talk the dollar up and it sure looks like they are then the market will call their bluff.  Aside from bargain hunting there is no reason to buy the dollar and since it has already rallied of it’s March lows it is not much of a bargain. Especially now that Iran is pushing for an OPEC petrol dollar or to start accepting gold instead. I like USD/JPY short with strong resistance having already been failed at 108.60 and plenty of room between here and 105.77 which I see as the next major support level. Today’s pathetic second test of the 108.60 level didn’t even make it to the figure before quickly reversing. Forex traders are not dumb, they know the dollar is worth less than 108 yen.

Big surprise, the fed decided to leave rates unchanged. In their statement the fed pointed to higher retail sales as evidence of health in the economy. However this is not significant when you realize that these figures count the sales from gas stations and groceries. It is appalling to me that they did not raise rates because of the inflation that is occurring due to the weak dollar and artificially low interest rates in large part. On the other hand they know just how close the entire financial system is to falling flat on it’s face so they dare not hike rates. After all if you were a struggling bank (which is what the Fed is comprised of) and you had to choose between cheap loans to yourself and higher inflation I am sure you would pick the loans too. Obviously we are entering a period of stagflation in the United States which will probably make the late 1970s look like a walk in the park.  Especially considering that we still have a war going on and government contractors taking the taxpayer to the cleaners. A war that the pea brains in Washington want to expand further by attacking Iran. needless to say with the Fed letting us down and our politicians doing the same I am still bearish on the dollar. The stock market bounced after traveling within 15 points of the March low and was looking desperately for a rate cut from the fed to save it. The 200 day moving average comes in at 11709 on the weekly chart as well so it is a level the market will respect the pattern completion and moving average for a while. It may even attempt a feeble rally before it plummets based solely on technical trading.

Let’s just wait and see what the G8 has to say after this weekend. Some of the dollar buying this week is based on an expectation of intervention to keep the dollar afloat. Perhaps the intervention has already occurred and it was of the verbal kind. The Japanese have proved in the past that this can be very effective, especially as the market has grown so fast the physical intervention is basically a drop in the bucket these days. We could see more strong dollar rhetoric coming out of the meeting which could help USD/JPY breach resistance levels at 108.60 but I don’t expect to see any real intervention occurring. More than likely Iran selling oil in euros and yen will be debated. There is no question that the U.S. is very bitter about it and that the Europeans are happy about it since they don’t have to by the dollar to buy oil all the time.

It has been a very interesting week with the dollar gaining ground as inflation is growing and oil is remaining at all time high prices. Bernake recently admitted that the high price of oil is due to the meddling of the Fed and their week dollar policy. It appears that the markets expect him to reverse course and start raising rates again to counteract his previous blunders. Let us hope it is not idle talk and that he will follow through with it now that the Fed has bailed out it’s member banks. Meanwhile the Japanese decided to hold rates steady and forecast “slowing growth” in their economy. No doubt due to the recession in the U.S. and it’s implications to exporters like Japan. I am sure the Japs are happy to see the yen backing off today after their meeting and somewhat gloomy forecast. They do cite inflationary pressures but it does not look like they are poised to raise rates anytime soon to curtail it. Especially when doing so would cause the yen to appreciate and they are not comfortable with that scenario. No doubt they are counting on the Fed to raise rates and thereby ease Japanese inflation because oil is being sold only in dollars outside of Iran, who began accepting the yen and the euro at the end of April. No wonder so many people in Washington want to invade them now.  It seems that the BOJ is betting on raising rates so they won’t have too. Higher rates in the U.S would ostensibly solve two problems for the Japanese, increase the purchasing power of the dollar, and decrease the  cost of food and fuel which is priced in dollars. That is of course assuming that the dollar actually rallies if and when the Fed raises rates. Of course the Japanese who have a notoriously weak currency despite being the number two economy in the world have shown they are not afraid of a little inflation. In fact over the years they have proven quite happy to devalue their currency in an effort to give themselves an unfair trade advantage over western rivals. We all know we are already at their mercy should Japan and China decide to unload all the dollars they have stockpiled one day and bring the U.S. to it’s knees. Who knows, maybe that’s what the Amero proponents are counting on.

With the Fed today claiming that they would stabilize the dollar and the market reacting as planned it makes it a good time to short the dollar. AUD/USD seems likely to shoot up a good 50 pips when their GDP is released tonight as long as it comes in as forecast or better than predicted. $.95 is a tough nut to crack for the pair and I don’t think Bernake’s rhetoric will be enough to crack it tonight. It would take a pretty bad number to do that. So my advice is to get in and put stops in at $.9495 just in case and expect to see about 50 pips by morning.

It was good to see Bernake admitting the Fed is at least partly to blame for the fiasco that they also of course “solved” in his speech today. It was laughable when he mentioned that low cost imports helped make the Fed’s job of containing inflation easier. The plan to solve the problem they created includes additional regulation, additional money creation to bail out banks investment firms, interest rate cuts which cause inflation and last but not least “close attention to the foreign exchange markets” to ensure that our currency remains valuable enough to buy junk from the Chinese at low prices and thereby do the Fed’s job and keep inflation low. I really don’t think that any of these measures will solve the problem, since the problem is the Fed itself.  Well at least we know why the dollar went up today, the Fed said they would wave a magic wand and stabilize it.

Sorry for the long delay between posts, I admit that I have not made this blog a priority. Hopefully you have made use of the technical analysis now available on the site if nothing else in the interim. I am not surprised to see the stock market down in the dumps again after it’s double top formation last month. It bounced of Fibonacci support today which comes in at 12347 and this seems to be the only thing keeping it afloat at the moment. Certainly the exuberance affected by the Fed with their bail outs has worn off at this point and reality is sinking in again. With oil at $125 a barrel and companies reporting huge losses it is easy to understand why. Gold has been sold off big time on it’s rallies but keeps creeping up to be dumped once again, and looks like it will stagnate for a while in this pattern. In any case get used to gold at $800 an ounce or more for a long time to come.

Turning to currencies, Aussie GDP is coming out in a few hours and should give a good idea of the situation down under. With a whimpy .3% growth forecast for the measured quarter it will be hard to come in below that figure and I suspect that if there is any deviation it will be to the upside. Although this pair is on a downward bias today it is unlikely to break $.95 tonight unless the number is really terrible as $.95 is a strong support level. Although if it does it should be a very strong move pushing AUD/USD down to $.93 before you know it. Both AUD/USD and NZD/USD popped up last month, stalled out and have started to reverse. Any dovish wording in tomorrow’s RBNZ statement will only serve to fuel the decline which I am sure suits the RBNZ just fine.

As for the dollar in general it looks like it has finally found some support and earned some respect in general. Perhaps bears are just waiting for it to pop up a little bit more before selling it off to new lows. It probably wont be long now before the Fed intervenes again and sends into the abyss. Maybe they are just baiting in the suckers to buy the dollar before they do so. We all know that the Fed is owned by the banks who trade Forex so it  is a logical conclusion. Let’s hope for the cost of food and energy’s sake that they cease their meddling sometime soon.

Hope you all booked some nice profits on either USD/JPY short or GBP/JPY short today. I still see potential for these two pairs to fall further tomorrow, especially if the Dow breaks it’s support in Europe of the US tomorrow. The US trade balance at 8:30 is likely to be huge and give traders another reason to short the dollar in general but against the yen in particular. GBP/JPY could easily fall another 300 pips from here by Friday afternoon, although Friday’s are known for being the day when people exit positions and trades fizzle out so use trailing stops and watch out for reversals.

Another day another all time high for oil. The UK and ECB continued to keep rates on hold which may have contributed to higher commodity prices today since the currencies of major oil importers went up. Europe and Japan are forced to buy in dollars and there currencies went up against the dollar so if oil were to stay the smae price then it is actually cheaper for them. Hence when it goes up a little oil is just keeping pace with the currency of some of it’s best customers. Of course oil is not going up just a little and all this violence in Beirut is not helping to cool off the already red hot oil market but I was just pointing out yet another reason why oil is gushing right off the chart. Surely gold is benefiting also from this turmoil in the mid east and skyrocketing crude as well.  The Dow is resting at support  right now,  support which has held for the  last  two weeks but I think it is finally ready to crack it.  Just like GBP/JPY looks like it is ready to crack it’s support which  is being tested for the fifth time today  right now.

The pound is correcting sharply after hovering around $2 with no good reason for a very long time. Sure rates are higher now in England but recently they were not and many of the same problems America faces are shared by our cousins overseas.  Now that key support of $1.9650 was cracked this morning it is quite possible to see this pair head towards $191.50. GBP/JPY is also on the ropes and the falling stock market coupled with the bad news from England are helping drive the pair lower. US data came out just as bad as expected with pending home sales sliding another 1% last month. Although the dollar is gaining against the overvalued pound it is weakening against the undervalued yen. The carry trade is unwinding today and stocks are falling also. The same correlation we saw last summer is still intact.