Sell USD/JPY now while it is still near 100 and look for a one penny move in it.

Today we saw the euro test it’s prior high against the dollar and it totally failed. The violence of the move suggests very large positions were triggered at $1.59 as many player had surmised this to be a double top and $1.59 being the perfect price to short. I must say at this point EUR/USD does not look like it is heading past $1.59 anytime soon. Last night Japanese industrial production beat market expectations as I figured it would but the PMI hurt the yen against the dollar. Todays stronger than expected Chicago PMI helped the dollar’s cause a little to be sure but let’s remember that a reading below 50 still means contraction. Far more important was the release by the IMF which showed that central banks were still holding lots of dollars (they are about the only ones) and that reserves actauly grew with U.S. dollars staying at 64%. Meaning in the last quarter the number of dollars they hold went up. in the USD/JPY is flirting with parity at the moment and the Tankan report is about to be released. I think it will hold at 100 yen to the dollar for tonight though with a Tankan report helping the yen rally here.

My recommendation is to buy the Yen. Sunday night should provide a good opportunity to do so with industrial production coming out and the PMI as well. I like the yen in general and I think looking at short term charts that USD/JPY is bound for 98.57 on Sunday and then lower next month.

The market has behaved much as I expected it would on the 25th when I last wrote some commentary. EUR/USD has indeed tested the highs it recently set and is idling for now. Next week will be crucial to the future of this pair because if a double top formation becomes visible on the charts it will almost certainly back off. Today’s inflation figures in Germany and higher import prices make it unlikely that the ECB will be cutting rates anytime soon. The Pound was driven back below $2 after house prices were shown to still be falling on year on year growth reduced to a minute 1.1%. The Yen seems poised to hold it’s ground year and actually gain more in April against the other majors. Japanese Industrial production will be eyed closely on March 30th and the Tankan will be coming out Monday night. Canadian GDP is to be released on Monday and will be the big tradable news in the U.S. session. While demand maybe slackening from the U.S. due to the stronger Loony overseas demand for Canada’s vast natural resources remains strong. Since Asian economies are still booming this can help make up for the slowdown in the U.S. however many Canadians are employed in industry which is not closely related to natural resources. In the end I think the Canadians are still doing better than the U.S. is at this point and I would not be surprised to see Canadian growth at higher levels than U.S. growth in the coming quarters.

Well now that Easter Sunday and Monday are over it is back to business as usual. Which if your trading currency means shorting the dollar. Even though a stronger than expected existing homes sales report was released the dollar has not been able to sustain a rally. This is proof of my earlier assertion that the dollar’s rally last week was just a knee jerk reaction. The rise in existing home sales is a good sign, probably a sign that those desperate to sell at a lose to avoid a foreclosure are finding plenty of investors desperate to get out of the shaky stock market which at this point is being propped up by the fed. Speaking of the stock market I think it’s rally has fizzled out and that USD/JPY is destined to stay below 100. It finds support at around 96 where it also hung out for a while during the Asian currency crisis in the mid nineties. Gold bugs are in their glory after taking many years of razzing in stride and are on their way to the promised land. No doubt many have already cashed in and demand is expected to moderate now that the Indian wedding season is over. None the less gold is a buy and I have rode it up form $910 this week and plan to continue to hold it at least until $1,000 is tested again. Considering the fundamentals of the U.S. economy I can see no reason why it shouldn’t. The Pound has rallied as I expected and right now rests above key Fibonacci support at $2.0036. The Euro looks like it is poised to at least attempt the double top here against the dollar if not set new all time highs. The German IFO tomorrow morning should give the market direction and the path of least resistance is up. The even bigger news later on will be the crucial durable goods report at 8:30 am and if the news is bad once again this month it could really break the back of the dollar. Following that key report up will be new home sales report which is expected to show less new homes being purchased than the month prior. This would not surprise me since it makes more sense to buy a used home from a “motivated seller” at a “deep discount” than to pay top dollar for a new one.

Yesterday’s release of the Bank of England’s minutes showed only two members voted to cut rates by 25 basis points in stark contrast to the slash happy Federal Reserve who seems eager to provide cheap money for desperate banks.  Today’s UK retail sales showed that there is reason for the hesitation since they rebounded nicely after a big disappointment two months ago.  Plus money supply while less than expected still came out at a disgusting 12.3% year on year.  Meanwhile inflation in Germany came in much higher than I expected I must admit and shows why the ECB needs to keep rates where they are or actually tighten if anything. Meanwhile the EU trade balance was a lot worse than expected yesterday at -10.7 billion euros which is pretty huge and a far cry from the surplus they recently enjoyed. This gives a good explanation as to why it was not able to recover at all today. While the pound was able to make a little it of headway. With tomorrow being good Friday you can probably expect low volume in the US and European sessions. That doesn’t mean of course that someone will try to take advantage of the illiquidity to move the market while most people are out. That is why I rather just make my trade tonight while the non Christian countries are trading and be flat tomorrow. If you see something big happening tomorrow by all means jump in if not have a nice Easter.

The Pound did indeed find some support yesterday night at at around $1.9780 and I hope you were able to make some pips on that trade before GBP/USD tested the downside prior to the strong UK retail sales which it back to its rate prior to the news of $1.9839.  I just went long NZD/USD at .79 it looks good here for about 50 pips.

I hope you all listened and bought the dollar after the 75 basis point cut (as crazy as that sounds) and have already or are about to book a profit on it. From a technical perspective GBP/USD is a buy right now with support coming in the way of the 61.8$ Fibonacci at 1.9782. I strongly suggest you dump this trade BEFORE the retail sales in the morning however. If you are already in a profit at that point I guess you could put in a stop to secure profits and hope for a good number. If your broker is not real good about honoring stops in fast markets though you should just get out and probably find one that is while your at it. I can refer you to a broker who will honor your stops if you need me too.

The Fed decided to cut by less than the 1% the market decided on Friday and Monday they would cut and the dollar predictable rallied. The market over reacted in typical fashion first with a sky is falling mentality and then with a knee jerk reaction to the Federal Reserve. The stock market backed off intialy after the less than expected cut as I said it would and bounced off of Fibonacci support at 12114 manifested as 12100. Of course it then rallied until reality kicked back in and it sold off again today. Gold fell far below $1000 this weak as oil also loses momentum and weak demand for oil is evident. Still with the summer driving season just around the corner I would be surprised to see black gold fall and stay below $100 for long. Unless the dollar really rallies inexplicably there is no reason to believe that gold will not breach $1000 again soon. Fundamentally the dollar is weak and the over sold signals on tech traders charts will not be enough to turn it around. What we are seeing here in the dollar is a healthy correction, nothing more. Tomorrow morning there will be some important data released in Germany, with PPI being released. I expect the higher costs of energy to be muted by the rise of the euro in relation to the dollar so the increase should not be any more than the .3% forecast and quite possibly less after last month’s big increase. Bigger still will be the UK retail sales at
5:30 and if they come out weak again like the last two months we could see GBP/USD at 1.9650 again tomorrow. Cable has really taken a pounding this week and it really all started at the end of the European session on Friday. A client was asking me what I thought about GBP/USD at the time and I told him it was going down and indeed it has. Although the dollar is weak I see no reason for a $2 pound since the UK is in much the same boat as the U.S.

Since Friday’s Bear Sterns debacle traders have decided to price in a full 1% point rate cut in at today’s meeting. So anything less than that should give the dollar a boost against it’s contemporaries. No matter what happens I expect to see the stock market sell off after it already rallied in anticipation of a huge cut and met Fibonacci resistance at 12,270. If the cut is a full 1% I expect to see the dollar give back some of the ground it has gained since Sunday and you should sell it.