Sell the dollar. If the fed and the treasury is just trying to talk the dollar up and it sure looks like they are then the market will call their bluff.  Aside from bargain hunting there is no reason to buy the dollar and since it has already rallied of it’s March lows it is not much of a bargain. Especially now that Iran is pushing for an OPEC petrol dollar or to start accepting gold instead. I like USD/JPY short with strong resistance having already been failed at 108.60 and plenty of room between here and 105.77 which I see as the next major support level. Today’s pathetic second test of the 108.60 level didn’t even make it to the figure before quickly reversing. Forex traders are not dumb, they know the dollar is worth less than 108 yen.

Let’s just wait and see what the G8 has to say after this weekend. Some of the dollar buying this week is based on an expectation of intervention to keep the dollar afloat. Perhaps the intervention has already occurred and it was of the verbal kind. The Japanese have proved in the past that this can be very effective, especially as the market has grown so fast the physical intervention is basically a drop in the bucket these days. We could see more strong dollar rhetoric coming out of the meeting which could help USD/JPY breach resistance levels at 108.60 but I don’t expect to see any real intervention occurring. More than likely Iran selling oil in euros and yen will be debated. There is no question that the U.S. is very bitter about it and that the Europeans are happy about it since they don’t have to by the dollar to buy oil all the time.

With the Fed today claiming that they would stabilize the dollar and the market reacting as planned it makes it a good time to short the dollar. AUD/USD seems likely to shoot up a good 50 pips when their GDP is released tonight as long as it comes in as forecast or better than predicted. $.95 is a tough nut to crack for the pair and I don’t think Bernake’s rhetoric will be enough to crack it tonight. It would take a pretty bad number to do that. So my advice is to get in and put stops in at $.9495 just in case and expect to see about 50 pips by morning.

Hope you all booked some nice profits on either USD/JPY short or GBP/JPY short today. I still see potential for these two pairs to fall further tomorrow, especially if the Dow breaks it’s support in Europe of the US tomorrow. The US trade balance at 8:30 is likely to be huge and give traders another reason to short the dollar in general but against the yen in particular. GBP/JPY could easily fall another 300 pips from here by Friday afternoon, although Friday’s are known for being the day when people exit positions and trades fizzle out so use trailing stops and watch out for reversals.

USD/JPY short is a good trade right now and I am in it currently. GBP/JPY is also a good short the way the numbers came out today from the UK.

The big news tonight will be the Australian interest rate decision which is expected to remain unchanged. Before that the trade balance will be released and it is also important for AUD/USD, AUD/JPY and other crosses. I expect to see AUD/USD struggle with $.9470 prior to the announcement and then come tumbling down about a penny afterwards. Unless of course they actually raise the rate tonight. Otherwise it’s just another case of buying the rumor and selling the fact that they left rates unchanged.

My advice at this point in the day on a Friday is don’t trade. There is not much happening and you don’t want to be stuck in the market on Sunday when it opens at 2. Your broker probably doesn’t open until 5 or in the case of some bucket shops six. This means that there is at least three hours that the market is moving without your orders being executed. It is not likely that you will make a bug profit between 1 and 5 today and you will be powerless for 2 to 5 on Sunday so just stay away and enjoy your weekend.

I like USD/CHF short tonight but there is some big news due from the U.S. tomorrow which you have to watch out for. If you are still in the market when 8:30 am rolls around trying to ride the pair down further then put a stop in close to the market in case the inflation figures that the Fed says they pay the most attention to come out. If your broker widens the spread to make more money and hit stops during the news I suggest you find another one. Same goes for the one who fills your stops 30 pips away during the news. This report is likely to show inflation above 2% year on year which is supposed to be the most the Fed will tolerate so the dollar may gain on the figure. Also released at 8:30 are spending and income which are likely to be weak. Spending minus energy and food I would expect to decline but it is included in the headline number so the market may make a knee jerk reaction. Bottom line is don’t get caught with your pants down if it does. By 10 am it should be safe to be short the dollar again when ISM manufacturing is released and another below 50 reading is recorded.

My call here is to short JPY/USD and USD/CHF since both are ready to fall at least a penny in the next 24 hours. GBP/JPY is poised to fall a few hundred pips as well I just went short here as it cracked key Fibonacci support. There is a clear double top formation in place and the carry trade is about to reverse here.

Sell GBP/USD now and get out before the rate decision. If the rate cut turns out to be 50 points get short again, if not expect it to rally afterwards.