I still like the yen today, even with the no change decision from the BOJ. The weak stock market is as good a reason as any to be buying it against the dollar since there is a strong correlation. Now that it has bounced there is a nice chance to sell USD/JPY at 107.50 and pick up at least 25 if not 50 pips on this today.

The New Zealand dollar did indeed back off as I forecast and the Yen also gained as I anticipated. Even though the BOJ left rates where they are the yen rallied before the announcement. It gave back its gains after the announcement so hopefully you took my advice to get out before the announcement or waited untill the European session to buy yen. In the European session was able to make new highs against the dollar and the pound. The stock market looks like it will be weak today after digesting all of this mornings disappointing news. For now the Fibonacci support of 12,292 is holding. The TICS report which showed private foreign investors (including government interests in disguise) dumping billions of dollars worth of U.S. treasuries and government agency bonds. Meanwhile corporate bond buying skyrocketed, however recent events have shown that these bonds are not nearly as secure as them seem, and that most of the AA or triple AAA paper these days is really just junk. So don’t expect this fad to last very long. Equities purchases by the private and government buyers shot up in December but based on January’s market performance I can’t envision next month’s figure to be anywhere near as good. So what I am trying to say is I expect January’s number to be even worse than today’s number was. Even at today’s figure we are not funding our trade deficit with the TICS capital inflows. Which means that billions of dollars have left America and been converted into some other currency. This for obvious reasons is bearish for the dollar, and when you couple that with the terrible Empire State Manufacturing Reading that was released today it is easy to see why the greenback and stock market is struggling today. Also worth noting was the much larger than expected European Union trade deficit today. It looks like Europe is starting become a casualty in the trade wars as well. Consumer Confidence is the last piece of the puzzle about to be released and I suspect this will also negatively effect stocks and the dollar.   

Just because I love you all, I am sending you a trading valentine. If you are married to the market like me you will be trading the BOJ rate announcement at midnight. I expect the yen to continue to strengthen tonight once the stock market closes and continue too at least untill the decision. If they do actually raise tonight expect further appreciation from there.

A lot has happened since I last took the time to assess the situation for you all. The U.S. and British housing markets continued to worsen; in a press release today from the NAR the average house price around the U.S. has fallen 5.8% in the fourth quarter of ‘07 vs ‘06. The realtors said what they always do, location, location, location! Half of the country showed price increases while half showed huge drops. I know the South Florida area has been hit particularly hard, the same guys who were gloating at the bar about how much they made in real estate a few years ago are the same guys crying in their beers today. I know people personally who are getting turned out this month because the house they thought they could flip was too expensive for them. It just goes to show you that speculation in any market is dangerous. Japanese Corporate goods prices came out stronger than expected once again as I figured they would. The Japanese current account surplus while a little smaller than forecast was still huge. GDP growth was much higher than expected coming out at more than double the Quarter on Quarter projections of most economists. This just goes to show you how much they know about the Japanese economy. This brings year on year growth to almost 4% in 2007 which is very healthy and a big part of the reason I expect a rate hike either tonight or next month at the very latest by the BOJ. The Aussie employment picture brightened considerably with the employrateemployment rate dropping to 4.1% last night. Even so AUD/USD could not penetrate $.9074.  Likewise the UK employment data was benign and helped the Pound break above $1.9650 after many failed attempts. Yesterday’s retail sales report was not enough to lift the dollar as higher than expected inventories weighed the dollar down.  Not to mention that EUR/USD was testing key support at $1.4535 just before the inventories came out. Today’s testimony by the whole three ring circus of the head of the SEC, the Federal Reserve and the treasury secretary did nothing to help the dollar’s cause. The Federal Reserve seems to think inflation is a fairy tail, no more real than goldilocks and the three bears. Today their chairman insinuated that further rate cuts were to be expected. Apparently the “fed” does not want to wait and see what effects there prior rate slashing will have on the economy. Their banking buddies must really be in big trouble, the liquidity crunch much more severe than we have been led to believe. Meanwhile this silly rebate package has not inspired the confidence of investors that the politicians in Washington have hoped it would. Of course neither did the trade deficit of $58 billion, although it is slightly better than forecast it is still a terrible number. As a result of all this the stock market fell from 12551 which is the 50% retracement on the move from 13,654 down to 11,456. Now the yen is starting to appreciate since the stock market is declining, U.S. data was weak, a doom and gloom testimony in congress with practically a promise to cut rates again. When you couple all that with the strength of the Japanese economy it is easy to see why. GBP/JPY failed 214 and if it breaks below 2.1180 expect it to head back down to retest 205.  In about 5 minutes the New Zealand retail sales figures are going to come out. Last month the figure was much higher than expected but the Kiwi dropped like a stone. I have a sneaking suspicion that we will see a similar outcome today.

As I said in the commentary there will be a lot of news to trade on tonight. Plus key currency pairs are at key levels so there should be lots of opportunity tonight. I like the yen against both the dollar and pound and think that the Aussie and Kiwi are due for a fall tonight. Don’t be afraid to buy yen now, it is already gaining against both the pound and dollar and should continue for the rest of the session. If you can take a profit before any news is released tonight even better as you avoid the volatility surrounding the releases.

The G7 meeting was a big part of the reason for the relatively calm markets last week. Yesterday was also pretty calm while the markets digested the language that came out of the conference. The notable exceptions came from the Aussie’s talking about sustained inflationary pressures and the statement from the G7 mentioning that there was a different situation in the Asia-Pacific region than Europe and the Americas. Meanwhile the Canadians did a good job of talking down their currency with assurances of their intent to slash interest rates. Although that only put the Loony below parity for one day and now it is back above it. British PPI came out much higher on Monday and allowed the plunging Pound to reverse course. Prior to the releases yesterday morning it was on it’s way down to test $1.9336 again but instead has rallied this week, even in the face of a negative trade balance for the first time in a long time and lower than expected CPI today. The higher than forecast PPI is inline with the BOE’s expectation of a large jump in inflation due to the declining pound and high commodity prices. None the less the bank is keen to slash rates like their U.S. and Canadian counterparts to rescue the banking sector from an otherwise certain collapse. If it were not for the liquidity being pumped into markets by the ECB, BOE, BOC and Fed the bankers would be on their knees at this point. Today’s ZEW report was better than expected and helped to lift the euro against its rivals. At 4:45 pm New Zealand PPI will be released and should be a market mover, and right on it’s heels is the ABC News consumer confidence reading. It could turn out to be a double whammy for the dollar against the Kiwi but $.7956 will be hard for the NZD/USD to break and based on the AUD/USD chart and the G7 comments I would say that a high inflation reading is already built into the market. If the number comes out at expectations or below them expect a pretty substantial sell off to occur. This could be a classic buy the rumor and sell the fact scenario. A little bit later everyone will be reminded of just how big the Japanese trade surplus is with the United States. Couple that with the fact that U.S. treasury yield’s sinking further and the Corporate Goods Price Index increases it is easy to make a case for a stronger yen against the dollar. That figure is to be released at 6:50 pm tonight also and is expected to show increased corporate costs once again with a figure of 2.8% expected. If all that were not enough at 7 pm the RICS house price balance index will be released and this figure is expected to be even worse than last month’s report which was the worst in 15 years.  About 65% of surveyors in England are expected to report home price decreases in this release. The figure expected is 52% which means 52% more see decreases than see increases or flat prices. With GBP/USD near resistance at $1.9650 this could present a good opportunity to sell Sterling, if not against the dollar than at least against the yen. Considering that it has already backed off against the dollar today I would say it is a good buy right here and now at 107.40. The prudent thing would to be to dump most or all of it prior to the numbers being released just in case and securing a decent profit. Especially since the stock market is now backing off and it is lunch time, as is so often with the case with stocks it seems like today will be a tale of two halves.

I just noticed that the DOW chart I referenced was not linked to the post on 2/6/08 so here it is. http://forextradersinc.com/tradingadvice/wp-content/uploads/2008/02/dow-2-6-08.doc

Don’t bother jumping in at this point. There is probably not anything worth getting in for right now. Wait untill Monday morning or Sunday night when your nice and fresh. Look for a chance to buy dollars then, possibly against the Pound if the inflation report is tame Monday morning.

Dollar buyers are taking their profits today. I had suspected this might happen today,  that the dollar would take a break before the weekend. The higher than expected inventories probably helped encourage this week end position squaring. High inventories are not a good sign, it shows a decrease in demand and an excess in production capacity which usually translates into layoffs and plant closings if a trend develops. Today’s Canadian employment report was volatile as ever.  This time it came out strong and instead of hitting the Fibonacci at 1.0175 it hit the one at .9962. Also helping the Loony accomplish this feat was the better than expected building permits report north of the border. The person I know who is developing out in B.C. is making a killing and this report is proof that there is still life in the housing market in Canada.

When I look at the daily chart it seems pretty obvious that GBP/USD will be retesting 1.9338 sometime soon. The Euro looks like it’s headed to 1.4367 also. The real question is will this actually happen before the weekend? They both look pretty weak right now but what I think is a little more likely is seeing USD/CAD at 1.0175tommorrow. It will probably be testing the Fibonacci at that level after the employment news tomorrow.