It’s Tough To Be A Dollar Bull
The FX market continues
to flip flop depending on the perceptions and or comments of what Fed
officials may do. Many traders in the fixed income market were caught on the
wrong side of the trade with the tame CPI number on Tuesday. That number
knocked the Dollar lower, but it has since recovered, broke down, and is now
recovering again (89.78, 50% retracement of June 14-15 high/low) ahead of the
PPI number which came in a bit higher than expected.
Like all markets, choppy price action needs to
treated with caution. Extending one’s time frame is one way to ride out the
erratic action, but regardless of time frame, the edge is degraded when there is
no visible trend. Looking ahead, there are solid trades in development. The
Euro (EUR) is testing key support at 1.1975 and a long-term trend-line at 1.19.Â
While the Yen (JPY) is flirting with a possible break-out to the upside at 109.Â
I am short USD/JPY as of early this AM in
anticipation of a further move towards 107.8.
Longer-term, it is tough to be a Dollar bull, but
as you well know, the macro picture alone is difficult to trade off, we need to
place our trades based on technicals. However, when the technicals and macro
analysis come together, you have a solid backdrop for good trades. That being
said, the EUR is particularly compelling as
we move forward here. If traders continue to worry about the US deficits, while
Euroland closes the output gap the EUR should trade higher. The only other wild
card in the mix is the Chinese Renminbi which appears closer to a re-valuation
with each passing day as inflation concerns in China take center stage. The EUR
has born the brunt of artifically supressed Asian currencies for some time now,
a move higher in the Asian bloc will likely put pressure on the EUR. A break of
1.19 would likely set off some technical selling as stop losses are taken out.Â
Yes, this is analysis which sees probable outcomes regarding the EUR which are
either positive or negative. Flexibility is the trait of all successful
traders. Never become so rigid in your analysis that you cannot “hear and see”
what the market is telling you.
Tomorrow, I will frame some key technical levels
and re-cap today’s action which should prove interesting now that the data is
out and traders can once again focus on the Fed.
As always, feel free to send me your comments and
questions.