The yen continues to strengthen against the dollar, as the stock market declined. To bad everything else did as well and my other two recommendations were worthless yesterday. At this point in the day it is unlikely that you will see any significant movement unless it is with the yen against the dollar if stocks continue to crash. So it is probably prudent to sit on the sidelines the rest of the day and enjoy your afternoon instead. Happy Defenders of the Fatherland day to our Russian comrades and zah droozh-boo myezh-doo nuh-roh-duh-mee.

Dollar sellers were out in full force today once again. I thought they might be squaring up for the weekend but it hasn’t happened yet. Meanwhile the stock market has broken its dual Fibonacci supports which were 12292 and 12270 and free fallen from there. As I said in yesterday’s advice, if the stocks kept falling the yen would keep earning and it has. I am actually short USD/JPY at the moment and in a profit on it. Those readers who have been subscribed for a while should remember my almost incessant preaching about a stronger yen being logical and necessary. The stock market’s next support comes in at 12113 and should hold for awhile but I still think the overall market trend is down and that we will see the 11,500 area tested once again.

OK this time I really mean it, short the euro. The pound may be an even better choice to sell against the dollar at this point after having failed $1.9650 again and shooting up today on the news. Either way you should be in good shape going in to Friday’s European session in a short EUR/USD or GBP/USD position.  The yen also gained against the dollar today with the help of a stock market which fell 300 points and bounced off its Fibonacci support. The dollar is even rallying against the major Asian currency tonight though. Of course if the stock market continues to tank tomorrow you can expect USD/JPY to follow right along.

Today the dollar faltered with the markets apparently absorbing the minutes of the FOMC meeting and the weak U.S. data that was released. As I suspected the UK retail sales came out looking good after last month’s decline. Even getting back to where you where the month before looks like growth in the next month’s reading. The Pound is tired now, having once again failed to breach $1.9650. I expect it to sell off tonight. I also think that the euro is due to give back some gains here. Today’s current account from Europe was negative $10 billion that is very significant. It shows that the terms of trade have worsened for the EU and if it continues provides a good fundamental reason to sell euro. Manufacturing data and industrial figures will be eyeballed tomorrow morning in Europe to help guide the market. I suspect these figures will be weak if the trade balance is any indication. At 8:30 am Canadian retail sales will be the big news and can be expected to move USD/CAD quite a bit for better or worse. Chances are they will be pretty strong since the secondhand effects of the U.S. slowdown will take a while to impact the Canadian economy. Especially after the beating the dollar took today I am expecting a recovery for the dollar on Friday which is traditionally the day on which swing trading market movers take their profits and unwind their positions.

I like the dollar here against the euro. Sell EUR/USD it should run down to at least $1.4685 tonight and probably $1.4615 by tomorrow afternoon. Stops can be placed with confidence above $1.4760.

The Pound did fall this morning and U.S. CPI was elevated as I expected it would. The vote from the BOE did not surprise in an 8-1 decision for the 25 point cut but the bank did revise down growth forecasts. German PPI was higher as I expected and was apparently not news to the markets either since the euro did not gain due to it. The bias seems to be to sell euro and pound now and it actually looks like a good time to short EUR/USD right now. The significant hike in the U.K. money supply at a staggering 12.9% year on year and 1.3% month on month only provided monetary support for the Pound. U.S. building permits came out slightly weaker than expected but housing starts slightly better so it was dollar neutral overall. Canadian leading indicators were healthy and better than expected. This coupled with USD/CAD hitting resistance at the 38.2% Fibonacci on the move from $1.1870 to $.9058 and record gold and oil prices allowed the Canadian dollar to rally. The downward revision to growth forecasts for 208 by the Federal Reserve noted in their meeting minutes was not exactly surprising. Kudos to Mr. Fisher who turned out to be the voice of reason at the meeting by explaining that the 75 basis point slashing was plenty of monetary stimuli and that inflation is too high. At least someone in that corrupt system gets it. Also Mr. Poole was at least willing to wait until the regularly scheduled meeting to slash rates while the rest of the Fed was in a panic. They probably saw a chance to manipulate the stock market and buy some stocks cheap before the surprise rate hike. Japanese figures came out quite weak tonight and will not help the yen against its rivals. Tomorrow’s big news is the U.K. retail sales which moved the market a lot last month when they came out very weak. Anything near as bad as last months reading and GBP/USD could be at $1.92 within five minutes of the release. Chances are the number will show improvement over last months decline and soften any blow that the Pound might take.

I expect the dollar to rally a bit in the morning when the U.S. CPI comes out. I think this will remind people that inflation is alive and well and that the Fed should not have cut rates so much and so fast to help out the cash poor banking elite. I think the dollar’s best chance is against the struggling British pound. There is potential for a two penny move to the downside on this pair between the BOE minutes and the U.S. data. I expect cable to at least test $1.9387 before noon tomorrow.

There are a lot of central banks releasing meeting minutes within a day of each other. First it was the Australians, now the Japanese, next the British and then the Federal Reserve. These minutes along with the key PPI number out of Germany and CPI from the U.S. should drive the markets in the next 24 hours.  First off the Japanese minutes stated that emerging market economies were picking up the slack from the decreased demand for exports and were expected to continue to do so. They did point out that new building codes coming into effect were responsible for the steep drop in new buildings but that this should only be temporary. They mention that production is healthy and that inventories are not bloated. They also mention that wage increases have not been significant and this can be construed as bearish for the yen since higher commodity prices and lower stock prices are expected to drag on consumption and wage growth. The Japanese seem concerned about the decline in new buildings slowing economic growth on the whole. Interestingly, one member noted that speculative real estate money is making its way to Japan and leaving Europe and the U.S. which is bullish for the yen. They also seem concerned about inflationary pressures from high commodity prices brought about by the weak dollar. They figure that the housing correction will be longer lasting in the U.S. than was forecast by the real estate industry.  Overall the minutes are bearish though because they surmise that the Japanese economy expanded less robustly than expected in recent months due to the slowdown in construction.  

Coming up at 2 am we have the German PPI which has been tame lately with the stronger Euro helping to contain input prices. I would expect some increase for January however since the Euro has not made new highs. The BOE minutes released at 4:30 am should be real interesting; if it turns out that a large number of participants called for a .5% rate cut in January (which seems likely) it should be bearish for the Pound. Industrial orders in England at 7 am are also significant but not as important as the U.S. CPI coming out at 8:30 am. CPI is expected to up tick to 4.3% on the year overall and steady at 2.4% on the core reading. I think the core reading will be higher than expected and this should help the dollar rally tomorrow morning. Housing starts could put a real damper on the rally however as more bad news from the real estate sector is almost guaranteed. At 2 pm all eyes will be on the minutes released by the Fed which will tell us a good deal about their mentality. I already know their mentality, to cut rates as much as possible as fast as possible in an effort to bail water out of the sinking ship which is the U.S. financial sector.  So at 2 pm there is a very good chance that the dollar will be giving back whatever gains it was able to make in the morning.  

Well the Aussie is gaining tonight due to the argument to raise rates only 25 or actually 50 basis points at the last RBA meeting. Since it seems to have stalled out here I would not recommend buying it right now. I do expect it to test $.94 again eventually but I would put an order in to buy at $.9175 instead of chasing it at $.92.  Tomorrow’s big news will be Canadian CPI which is expected to rise slightly at 7 am but don’t be surprised to see the Loony lose value against the dollar if the number comes out in line. The dollar has shown some strength lately and it has become apparent that large players have been exiting dollar shorts recently.

Happy Birthday Mr. president, happy birthday to you. I hope you are all enjoying the honorable Mr. Washington’s birthday and celebrating in style. The dollar was able to stage a minor rally on Friday even as consumer confidence plunged far more than expected. Sadly this adversely effected my USD/JPY short recommendation but it was due mainly to dollar buying rather than yen weakness. In fact the GBP/JPY fell about 1 penny soon after my recommendation as it failed 211.79 the 38.2 percent retracement of the low set in September of 2000 and the high made in July of 2007. Perhaps the dollar buying can be explained as a wave of patriotism in remembrance of the man who’s countenance graces the $1 bill. It certainly isn’t the economic fundamentals driving the dollar as the picture is as gloomy as ever. Could be a long term case of buy the rumor and sell the fact since the news of a recession in the U.S. is not exactly news and the dollar has already dropped a lot. Perhaps now the big boys at the banks and sovereign wealth funds are exiting dollar shorts and cashing in while poor suckers late to the game are just jumping in on the dollar selling bandwagon. This seems to be a likely scenario judging from prior market corrections. On the news front the Japanese Tertiary Industry Index came out much worse than expected last night and this helped the dollar consolidate gains against it. The UK RightMove index came out showing strong growth in home prices which helped the Pound out initially but it could not crack $196.50 and also caved in against the greenback. Tonight’s Japanese numbers came out in line with expectations and retail sales are still to come in an hour. the RBA released their meeting minutes and they were quite hawkish, stating that inflation was broad based in the Aussie economy and that the economy was very healthy overall. They even contemplated raising by 50 points instead of 25 so it is not wonder that the Australian Dollar received a lift tonight. This is what you would expect to hear from a bank who is raising rates and rightfully so since the slowdown effecting the western world has really bypassed the blokes down under. The Aussie is struggling with $.92 right now and is poised to retest $.94 now that it has broken key resistance at $.9175. Interestingly, they mention that there are increasing price pressures inside China and that this inflation may be passed along in the form of higher export prices in the future.  They also pointed out that write downs so far from the sub prime scandal had reached $120 billion so far and that if it were not for sovereign wealth funds in Asia performing cash transfusions that these big banks would be belly up. They also pointed out that the blood bath was not over yet because of the inaccurate ratings being applied to junk bonds which have been rated double or even triple a. If the bond insurers collapse a world of hurt is bound to be in store for the financial industry. Be on the lookout for skydivers without parachutes in financial centers around the world if this happens.