Leading Economic Indicators dropped for the fifth straight month and jobless claims rose indicating that the U.S. economy may be in the midst of a recession. The warning signals are there for a halt in the economy according to the Conference Board.
The Philadelphia Fed report showed a contraction smaller than analysts expected. This was actually perceived as somewhat friendly by the equity markets.
Earlier in the week, the Fed cut rates 75 bp. Financial traders were looking for a full point cut. This action may be an indication that the Fed will be less aggressive in the future because of inflationary concerns. The Dollar turned firmer on this news, triggering a massive liquidation in commodity markets.
Talk around the globe centered on a possible intervention by the European Central Bank and the Bank of Japan. The action by the Fed subsequently raised the Dollar and the two central banks backed off. The ECB will be watching for signs of a slowdown due to slow exports. This may lead to a rate cut if conditions persist.
The Bank of England will be closely monitoring the UK Banking situation. The BoE is intent on keeping a close dialogue. The official statement read, The Bank of England and the banks agreed to continue their close dialogue with the objective of restoring more orderly market conditions. The GBPUSD was slightly higher at times on Thursday due to the strong UK retail sales.
Continued weakness in Crude, Gold and Wheat is likely to weight heavily on the Canadian Dollar. A slowdown in the economy may force the Bank of Canada to cut rates.
A weekly reversal down in the Euro is a sign of a short-term top. The market will have to follow through to the downside to confirm the reversal. If confirmed, the Euro may go on a three-week break. Trend traders have to be patient for a buying opportunity in the .1517 to 1.4998 range. Counter-trend traders can sell a rally into 1.565 to 1.57.
The main trend is down in GBPUSD. Look for a selling opportunity on a retracement to 2.00 to 2.01. Counter-trend traders can look to buy a break back to 1.988 to 1.9756. The market is pricing in possible changes to the banking system. Until the bank problems go away, look for the GBPUSD to drift lower.
The weekly reversal up in the USDJPY is potentially bullish. This type of bottom is usually tested once before moving higher. Look to buy a dip back to 98.08 to 97.52. An acceleration to the upside may trigger a break out rally at 102.15 to 103.67.
The unwinding of commodity spreads and outrights could prove to be a very bullish signal in the USDCHF. Watch for an acceleration to the upside on a trade through 1.035. A test of this area would put the market in a position to make a full retracement of the recent break to 1.038 to 1.0585. Look for the best selling to occur into this zone. On the downside, look to buy a break back to .9907 to .9846.
Weak commodity prices, especially in Gold and Crude, are expected to weigh on the Canadian Dollar. The size of the base looks strong as 1.038 is the next upside target. With the main trend up in USDCAD, look to buy a break back to 1.004 to 9864.
A double-top formation in the Aussie was confirmed on Thursday. Look for a two-sided trade as the market continues to distribute out this top. Buyers are likely to step in at .9004 to .8888. With the main trend down, sell the next rally back to .9211 to .9272.
The NZDUSD chart indicates a substantial amount of room to the downside if a seller would just press this market. Sell a rally to .8040 to .8081 looking for an objective of .7798 to .7700. If unable to get short, then look to get long on the same dip.
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