After several days of trying to talk down the Euro, the ECB's next move may be an intervention. It is their call as Bernanke is already on record stating that he is in favor of a strong Dollar. Each day the Euro rallies to a new high is another day that Eurozone exports suffer. When is the outlook for exports going to turn dismal enough for the ECB to take action toward the Euro? Trichet has been using the word volatility to describe the trading action in the currencies. I do not see the volatility he is speaking of. I do see a trend, however. I see traders taking advantage of solid fundamentals and trading in the direction of those fundamentals. Until the fundamentals change, there is not a lot anyone can do to halt the trend. An intervention at current levels may halt the rally, but not necessarily change the trend. Even if the ECB intervenes, do not expect longs to just lie down and die. It is going to take a more powerful shift in ECB interest rates to start a downtrend. I doubt if Trichet will start cutting despite his concerns because he is also battling inflation. The Fed at least is making an effort to fight the U.S. economic problems. Trichet seems to be blaming traders for creating volatility when they are just trading a trend. From my experience, he is going to cause the volatility when he takes action because no matter what he does now, he is going to put a sudden halt to a strong trend. Whatever he does â€“ intervention or interest rate cut - he is going to surprise the market. Traders do not like surprises; they like trends.
Long Euro traders continued to dominate the market. Today was really a stock day as the overall markets focused on equity market troubles. Tomorrow's release of the CPI will bring the focus back to the U.S. economy. The CPI number is not expected to show any improvement.
EURUSD: The main trend remains up in the Euro. The main trend turns down on a move through 1.533. There is no resistance at this time. The Euro also regained an up trending angle at 1.542. Use a pullback to this angle as an entry point. The Euro is still vulnerable to a daily reversal down, but without a follow through break, it really means nothing to the short-term uptrend.
GBPUSD: The main trend is up. The new main bottom moves up to 1.999. The GBP has regained an important technical area at 2.0248. As long as we can hold this level, then the tone remains bullish. The next upside target is 2.046. There may be some profit taking at that level. The fundamentals support a strong Pound as the BoE is keeping interest rates steady while the Fed is expected to cut again.
USDJPY: The BoJ has been quiet despite the fact that the Yen traded at levels not seen since 1995. The media is talking about psychological points and BoJ intervention, however, the move taking place is logical because the U.S. economy is weak versus Japan. There has been no manipulation just a trend. I think they realize that an intervention will only temporarily delay the trend. Use the stock market as a guide. The U.S. equities are in a position to reverse the week to up. Watch last Friday's Yen close to see if the USDJPY is reversing up. The main trend turns up on a trade through 1.035.
USDCHF: If the U.S. Equity markets reverse the week to up, then the USDCHF may see profit taking. This action would most likely lead to excessive short covering, as the market is extremely oversold. Take a look at last weekâ€™s close to see if we have regained it on the upside. Lighten up on shorts if the market looks like it is going to close up for the week. True trend traders can move stops to just above 1.035. If this price is taken out, then consider the long side. The key today is to watch last Friday's close for direction.
USDCAD: The USDCAD is not attracting much interest as traders believe that their economies are so closely linked that the market should trade near par as it seems to be doing. Even with gold, wheat and crude all making new all time highs, the CAD could not rally big. Watch this market with caution, but I suspect Canadian export numbers are going to reflect strong commodity prices that could make the CAD an attractive buy.
AUDUSD: The main trend remains up as the AUDUSD approached 23-year highs once again. The rally has all interest rate differential buying. The main trend remains up as long as .9147 holds. The RBA is already on record saying they are going to hold interest rates steady, as the economy seems to be slowing down. Traders like the long side now because of the return they are getting. Stay long as long as the trend is up. The market would have to make a tremendous reversal at current levels to trigger a double top. Stay with the trend and watch for a breakout to the upside if the U.S. CPI comes out bad.
NZDUSD: The main trend is still up. The main bottom is .7874. With the market confident that the U.S. will cut rates on March 18, stay long and buy dips. We will be watching last week's close to see if the market closes on the bull side of the trend.
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