3 Reasons Dollar Bears Should Be Concerned

  • November 4, 2004
  • Dave Floyd


Despite a clear cut winner to the presidential election,
the market now appears to be concerned that no significant changes will occur
from a fiscal standpoint.  With the current and proposed agenda, fiscal hawks
and dollar bears have reasons for concern:

–         
Tax cuts are set to remain permanent,
this will further deteriorate the 10-year budget outlook

–         
Privatization of Social Security —
would likely increase deficits

–         
Shift towards sales versus income tax

The result, whether or not
these issues are moved forward, is that it offers no change in the concerns that
market participants have been focused on: spiraling current account deficit and
continued strained relations with other nations.

While this of course is not
terribly insightful nor sheds light on new issues, it does appear that the FX
markets are simply now running with an old story.

Technical
Notes:             

EUR/USD:  new highs on new
dollar lows, look for moves now towards 1.2900 and 1.2926 with short-term model
showing support on pull-backs at 1.2790 and 1.2830

GBP/USD:  still not able to
take out key resistance at 1.8485, but short-term models (1-2 days out) still
show possibility of reaching target of 1.8545-60 before taking a swing at next
key level 1.8605

USD/CHF:  fresh lows overnight
should take prices towards 1.1860 and 1.1838 which is the August ’96 low. 
However, given the current “oversold” conditions, selling a bounce might be the
better approach at present

NZD/USD:  despite a weaker
dollar, NZD remains stuck and unable to take out recent highs at .6900-.6910. 
Look for .6870 and .6819 to act as near-term supports

AUD/NZD:  we are long this pair
from yesterday.  Seeking a break above 1.1030 for confirmation of further gains.

AUD/CAD:  this is a short that
is turned into an investment, if there were shareholder meetings for holders of
currencies, we would be invited to sit in the front row.  Nonetheless,
yesterday’s failure to hold on to some impulsive gains above .9170 indicate that
a break of .9070 is still imminent.

EUR/AUD:  waiting for a solid
break of 1.6955 with 1.7010 capping any rallies.  Projections call for 1.6880
and 1.6805 as near-term targets.

As always, feel free to send me
your comments and questions.


Dave