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Currency Currents

Currency Currents

Tue, Apr 1 2008, 14:20 GMT
by Jack Crooks

Black Swan Capital

FX Trading – Is it the Dollar’s Day to Shine?

We seem to find outselves asking that question quite a bit. I guess we just find it hard to believe that the U.S. dollar can suffer this much, for this long. Anyway, there are some interesting items to pick and choose from today – ones that make me wonder whether this is a chance for the dollar to find a bottom. You be the judge …

Japanese yen – For most of the last seven or eight months the Japanese yen has traded opposite Japan’s uninspiring economic fundamentals. Global risk and dollar weakness have been the biggest drivers for the yen. The carry-trade unwinding process has given traders plenty of reason to buy into yen strength.

And really not much has changed, except the yen may have gotten ahead of itself.

Overnight the Bank of Japan’s Tankan survey was released. It was a lackluster report that showed confidence in Japanese business conditions to be waning. Is this an indication that Japan will be impacted by a global slowdown? Probably. Is it an indication that business are having a tough time dealing with an appreciating yen? Probably.

It’s also probably why we’re seeing the Japanese yen fall off the table here this morning.

The yen is definitely in cool-down mode now, as we expected it would be. The extent of the yen’s reaction to Japanese economic developments may be limited. What will garner the biggest yen reaction will be the overall strength of the dollar.

Japanese yen futures are coming down to a key support level. A swift break lower could leave the door open to an extended period of losses.

Euro – yesterday we were given an interesting set-up on the EURUSD chart. Take a look at the daily and hourly euro charts that follow.

Daily

Hourly

So far, what I see on the daily chart is a failure at its high point. And what I see on the hourly chart is a dramatic 2-hour reversal at its high point. The nature of the price action is what matters most in the short-term, but yesterday could prove to be a crucial for the euro over the coming days and weeks.

And a few worries on the global front are adding to the euro’s adverse price action. Check out the ‘Key News’ section at the top and you’ll find two stories of major European Banks that are revealing further pain from credit market turmoil.

We’ve been with the majority of the crowd in saying that the U.S. has felt most of the pain from the subprime induced mess. But we’ve also been expecting Europe to fall victim to similar pain. UBS and Deutsche Bank are reminding the market of this fact.

When the euro and yen are both showing signs of weakness, it may be time to wonder if the dollar’s being given a chance to put in a bottom. The bucks certainly being given something to build from; we’ll see if it can put the pieces together. Keep an eye out – it’s April Fool’s Day!

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Published on  Tue, Apr 1 2008, 14:30 GMT

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Black Swan Capital LLC  | 2161 SW Racquet Club Drive Palm City, Florida 34990
http://www.blackswantrading.com | jcrooks@blackswantrading.com