Happy MLK day today is a reminder that powerful change can be effected by nonviolent means and also that ideas cannot be killed. Turning to the FX markets it is obvious now too many that the double top is in on the Euro whose formation was provoked in part by low German CPI today. Something which I have been talking about occurring for at least a week and which has now come to fruition. Somewhat surprising was a lack of profit taking by dollar buyers on Friday, or perhaps there was profit taking but new buyers taking their places. In either case the dollar has added to last week’s gains today against the European currency which has been frankly overvalued and due for a correction. Pathetic retail sales figures on Friday out of Britain and another decline in the house price index did little to make the case for a $2 pound any stronger. Also the Swiss Franc is retreating against the dollar after hitting my target of 1.09 again it has formed it’s own double top and the correlation to the Euro is outweighing it’s correlation to the yen as part of the carry trade. Speaking of the carry trade, it is in a shambles and it continues to get worse for those to foolish to see the writing on the wall. The Aussie and Kiwi Dollar’s are reeling (lower than forecast Aussie PPI didn’t help) and the yen has came down to test support at 105.71 today finally. If this is broken the next major support level will be 101.64 followed by 101.23 and the physiologically important 100. If all that is broken we could see USD/JPY at 79.95 before you know it. Especially now that the stock market is crashing and there is such a strong correlation between USD/JPY and the Dow Jones. Carry traders are hoping to find some support in GBP/JPY at 205.14 which is the 38.2% retracement of the low set during the Asian Currency Crisis in the mid nineties to the highs set last year. If that does not hold the next level is 199.66. It seems likely that we will see 200 pierced sometime soon in this pair. The market is now eyeing the BOJ’s rate decision tonight and wondering what Fukui will say afterwards. The market is expecting no change but I would not be surprised by a rate hike at all. So far this year has been anything but boring, and you should expect to continue seeing fireworks in the weeks and months to come. Tomorrow’s Canadian retail sales and rate announcement by the BOC will also be closely scrutinized. A cut is being forecast and could be in the cards but the housing market is still pretty strong there as far as I know. Now that the Canadian dollar is below parity once again the need may not be as pressing for that rate cut. Especially with mining and oil and gas businesses still booming and food prices steep as well. This translates to more cash in the pockets of ranchers and welders and could translate into inflation as well. On the other hand central banks are known to protect their own and seem more likely to bail out their buddies than keep inflation in check.
