After carefully reviewing the longer term monthly and weekly charts it has become apparent that a reverse wedge formation is evident on the EUR/USD chart.  If you go back to the synthetic Euro in 1994 this pattern has been completed, also reading the candlesticks, it looks like the dollar’s rally will be more sustained than I originally thought.  It will be interesting to see where those long term candlesticks close.  I had heard scuttlebutt from numerous bank traders that the Euro would hit the mid $1.47 area and back off, it appears to be confirmed at the moment.  Perhaps they were also looking at that monthly chart with the synthetic high.  Gold has made a double top formation which is a good indicator that this rally is for real as well.  It appears I have been guilty of chasing the market.  I don’t expect to see Yen break 1.1375 which is the 50% retracement on the move from the low of 79.75 in 1995 during the Asian currency crisis and the high of 147.71 in 1998 during the last stock market boom and high interest rate dollar strength cycle.  Also let me say I don’t expect the Euro to reach parity again anytime soon.  But a return to the mid $1.20s seems likely at this point.  From a fundamental standpoint (which I have been basing my recommendations on so far) not much has changed so I don’t see the dollar reaching $1.00 on the DX anytime soon, but it certainly seems intent on holding on holding 74.50.    

The bargain hunters won the day and the PCE helped lift the Greenback this morning.  I do expect sentiment to turn next week and profit taking to kick in this afternoon.  Short USD/CHF now that the dust has settled from the data releases this morning.  It tried the key level of $1.13 and failed it and the pattern visible on the 4 hour and daily chart is now complete.  The data today was Franc positive so get in now if you want or wait untill Sunday or Monday if you are weary of new positions at this point.

Today’s data releases prove the point that currency valuation in the forex market, effect national output and wealth distribution.  Canada’s GDP for example shows strong domestic demand yet poor results for retailers.  Canadian shoppers and businesses who are flush with cash from the commodity boom economy north of the border turned to the states and other countries to do their shopping.  Smartly they are taking advantage of their currencies current strength.  This in turn shaved off about 1.5% of off GDP and their exports were also stunted.  Inventories at retailers ballooned and manufacturing slowed down.  Meanwhile the Swiss saw better than expected GDP released as well as an upward revision to last quarter’s figure due mainly to exports to the rest of Europe where the strong Euro makes it advantageous to buy Swiss products.  Not surprisingly, Euro area retail sales also fell.  Inflation in Switzerland also picked up, quite possibly due to all the foreign purchases.  Expect more hate hikes from the SNB as long as there is a significant difference in the value of the Euro.  If the carry trade is indeed collapsing this is one more nail in its coffin.  Meanwhile in the U.S. PCE expenditure was a bit higher than expected and this leads the markets to a dollar positive outing.  Strong Chicago PMI also helps make the case for a rallying dollar although weak construction spending points out the housing situation once again.  Everyone already knows about the housing issues in the U.S., the real question is has the mammoth meltdown which has hurt developers and their banker buddies as well as homeowners been fully priced into the market.  My answer, no.  But don’t expect the dollar to collapse overnight either, with PCE coming out the way it has and inflation rearing its ugly head the Fed may not have the luxury of cutting rates again soon.  This is reason enough for some people to buy dollars, but don’t expect that sentiment to last forever.  Inflation is not a good thing, and doesn’t always support a currency due to expected rate hikes. There is a healthy looking wishbone pattern forming on the daily charts right now but this move appears to be just about over.  Look for the dollar bears to emerge again next week.

Since Thursday is over I will just give a suggestion for Friday.  People will be most likely exiting dollar longs placed yesterday and reentering dollar shorts after this batch of economic data is released and reminds everyone of the reasons the dollar is weak.  My suggestion is to buy the Loony once again.  It will probably rally prior to the number being released at 8:30 so try to cash in beforehand.  Only the stout hearted should stay in during the news but I do expect the news to be dollar negative.  Sometimes the smart money has moved the market before the news and sells the fact to suckers.  Be wary of this.  Also you can expect strength for the Euro and Swiss Franc earlier in the morning.

Today’s upward revision of GDP and new home sales beating expectations helped buoy the dollar today.  As I had anticipated it faltered against its Canadian counterpart despite a weak current account figure.  These figures seem impressive but when you consider the low Q2 figure the GDP isn’t so great and also remembering that they are practically giving away new homes to get them sold the reality becomes clear.  New house prices are down 13% year on year and the inventory is still bloated.  Looking ahead tomorrow’s calendar is chock full of economic data releases with very important inflation and sales figures from Europe, as well as GDP data there and in Canada also.  Not to mention British consumer confidence. On top of all this we have the Personal Consumption Expenditures and income coming out which the Fed is known to watch closely coming from the US a little later at the same tie Canadian GDP is coming out!  Top it all off with Chicago PMI and construction spending (which will remain weak) and you should end up with an action packed session.  Expect any increase over the forecast GDP in Canada to lift the Loony.  Look for significant movement in the European session anything over .7% for the Swiss and the Euro area GDP is a big reason to buy also, this could be muted by weak retail spending though.  The best advice is usually to let a release of data become digested by the market before jumping in, if you are doing this tomorrow you had better book a profit quickly before the next round of numbers come out.  Don’t expect Core PCE to be very high since high gas and food prices have probably curtailed consumer spending.  Expect an overall dollar negative day.         

In my heart I wanted to advise to short USD/CAD yesterday but did not.  As a consequence I have made my first poor recommendation on this site, and do apologize for it.  The CAD is still a favorite at this time, especially since it has already bounced against the dollar, retracing substantially and is now it appears the favorite currency to buy against the greenback once again by forex traders.  The $1 level is key and a great place to put a limit to sell USD/CAD.  You might not get that opportunity but it may be wise to place that order prior to the existing home sales release which may cause enough volatility to trigger that order.  In any event the USD/CAD still looks like a short to me.

The strong KOF did nothing to strengthen the Franc and the Yen faired no better.  Apparently this recent move in the fx markets is a knee jerk reaction to the huge move that has occurred already.  Even the dollar is rallying currently, although the existing home sales are still coming out today.  So there is a little egg on my face today.  The Canadian dollar as I expected has held the $1 level and appears to once again be the best buy against the greenback.  Look for weaker than expected home sales data in 15 minutes.

Given the fact that the Yen just retraced a penny and that retail sales data came out above expectations I could say buy the Yen again.  Which I do, but also I like the Swiss Franc against the U.S. dollar going into tomorrow with the KOF and existing home sales helping the Franc get back below 1.10.  You might also try GBP/CHF if you fear volatility around the U.S. figures, the carry trade unwinding helps out with that trade as well.   GBP JPY is also a short currently with 225 being resistance on it.  Look for at least half a penny on these trades you can probably pick up 150 pips on GBP/JPY overnight with 223.50 as a take profit FX traders. 

U.S. Dollar buying is occuring here, if only becuase of bargin hunting and profit taking.  The housing price figure came out a little bit better than expected but not enough to give a real boost to the greenback.  FX traders will be eyeing the KOF from Switzerland early and also the durable goods and existing home sales data loom large.  Those figures should be the catalyst for the next significant movement, which I for one expect to be negative for the dollar.  The KOF should come out strong once again as the Swiss economy is doing great.  Also Japanese commerical sales figures just released showed growth in overale retail sales which was unexpected.  This is another reason for Forex traders to buy Yen, the timing is convienent considering that the yen has just backed of a bit, great time for fresh shorts here.   

I am still recommending that you buy yen against the dollar.  If you are still in hold on to it, at least untill the retail sales data is released tomarrow.  Expect a return to the 107.60 area.