Another day another all time high for oil. The UK and ECB continued to keep rates on hold which may have contributed to higher commodity prices today since the currencies of major oil importers went up. Europe and Japan are forced to buy in dollars and there currencies went up against the dollar so if oil were to stay the smae price then it is actually cheaper for them. Hence when it goes up a little oil is just keeping pace with the currency of some of it’s best customers. Of course oil is not going up just a little and all this violence in Beirut is not helping to cool off the already red hot oil market but I was just pointing out yet another reason why oil is gushing right off the chart. Surely gold is benefiting also from this turmoil in the mid east and skyrocketing crude as well.  The Dow is resting at support  right now,  support which has held for the  last  two weeks but I think it is finally ready to crack it.  Just like GBP/JPY looks like it is ready to crack it’s support which  is being tested for the fifth time today  right now.

The pound is correcting sharply after hovering around $2 with no good reason for a very long time. Sure rates are higher now in England but recently they were not and many of the same problems America faces are shared by our cousins overseas.  Now that key support of $1.9650 was cracked this morning it is quite possible to see this pair head towards $191.50. GBP/JPY is also on the ropes and the falling stock market coupled with the bad news from England are helping drive the pair lower. US data came out just as bad as expected with pending home sales sliding another 1% last month. Although the dollar is gaining against the overvalued pound it is weakening against the undervalued yen. The carry trade is unwinding today and stocks are falling also. The same correlation we saw last summer is still intact.

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.

Today’s strong non manufacturing ISM took the market by surprise but the dollar could not hold onto the gains it made on this market shocker. This gives some good insight into the mentality of the market and the dollar bid tone at the moment in it. The market tends to move in weekly not daily waves since there really is only one close to the market, Friday at 5 pm. So naturally that is when many people exit their positions and when the market reopens many of these same people place positions on the opposite side of the market. Certainly big money traders at banks and other places operate this way. They have to much money to receive high leverage so for them to see a 3% return on their trades they must make 3 pennies in the market. This often takes a week to do on one trade and since they have no leverage they are not panicky and getting stopped out or margin called like the rest of us. Thus the mentality of a swing trader is buy it on Monday sell it on Friday. Obviously the weak hand will be shaken out of the market and the strong will survive the daily whip saw action until Friday when they cash out. I am not saying everyone who has real money puts trades on Sunday or Monday and holds them to Friday, I am simply saying enough people do it to make it  predictable. So this week it looks like the dollar is  being sold. After the rally last week it makes perfect sense to me and certainly gold is steadily climbing which indicates this to be the case.

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.

The dollar did rally as I figured it would after breaching yesterday’s key inflation figure, breaching the key 2% level. The dollar was already up on the morning and this helped propel it further.  Today’s  employment report  showed that  another 20,000 jobs have been slashed but this was considered to be “good” by the markets who were expecting much worse news. So the dollar continued it’s rally today however it sputtered and stalled at 10 am when factory orders came out. The number was good but the market figured the dollar had already appreciated enough this week and began to sell off. It was sold at noon and just now prior to 1 pm as European players dumped it and got out for the weekend. I don’t think it will do much for the rest of the day. Hopefully you already made your money today and don’t need to try to force a trade now in this quiet market.

I suspect we could see the dollar sell off next week. The same people who bought the dollar today will likely be selling it next week. Especially if the non manufacturing ISM comes out weak again.

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.

Another Fed meeting, another rate cut. This was predictable and the dollar derives no support from this cheap money policy to keep the big banks who are cash poor afloat. GDP came out a tic higher than expected and provided some moderate  support for the dollar but  the Fed once again ensured there would be no rally for the greenback. It languishes near all time lows and it is obvious now to most that it’s rally has stalled out. Gold is a good example of this since it was down on the day to it’s lowest price in three months just prior to the meeting then rallied $16 in an hour. This shows that there is no faith in the dollar or the fed anymore and with good reason too. Their ridiculous claim in the accompanying statement that inflation will moderate is pure nonsense. Obviously they need an economics lesson if they think lower rates will make inflation moderate. They are counting on screwing up the economy so bad that no one will make money and this in turn will lower inflation. If that is their idea of a soft landing I hate to think what a hard one would look like. Suffice it to say that I am not bullish on the dollar as long as the monkey shines at the Fed are allowed to continue unchecked.

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.