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Daily Analysis Article

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It seems to be human nature to do the wrong thing with money when we have too much of it

Wed, Jul 29 2009, 18:17 GMT
by Ralph Shell

ForexRazor

EUR/USD Commentary and Trade Ideas

This mornings dollar strength, partially attributed to weakness in Chinese stocks, comes at an awkward time for speculators recently engorged with long Euro positions. Yesterday's failure to spend any time above the 1.43 level was a warning. Currently we are trading in the 1.41 area where there is some support. Excess Chinese liquidity causing a speculative bubble, is given as the reason for the curtailment of lending by Chinese banks. It seems to be human nature to do the wrong thing with money when we have too much of it. While the US also has loosened the money supply, we have a Treasury note auctions to sop up the idle dollars. Yesterday they sold a record 42B 2 year notes, today 39B 5 year notes to be followed by 28B 7 year notes tomorrow.

This morning's US estimate of durable goods orders came in worse than the estimate at a negative 2.5%, and may tilt US equities to the downside. If the red numbers for the US equities get too big today and the Dow shows signs of staying under 9000, where will that take the Euro? It looks like too many people are betting on the immediate demise of the dollar. Try scalping the short side. A return to the 1.4150/1.4200 area would seem like an ideal spot, but that may not happen.

Bias: Lower Bias Term: Medium Support: 1.4060 1.3980 1.3900 Resistance: 1.4150 1.4220 1.4280

 GBP/USD Commentary and Trade Ideas 

An overnight sale in the pound took us down to the 1.6350, but we have since rallied back to the 1.6450 level. A UK report of net lending to individuals was a record low. Does this mean that banks are unwilling lenders, or are individuals fearful of their economic future, unwilling to borrow? In the Euro session the FTSE ignored the Asian weakness and stayed firm. With US equities only modestly lower in the early go, we are again lacking direction. It looks like the market remains a fade when it strays 75 or so points either side of 1.6450.

Bias: Neutral Bias Term: Medium Support: 1.6390 1.6300 1.6240 Resistance: 1.6470 1.6540 1.6590

USD/JPY Commentary and Trade Ideas 

Our buy ideas yesterday at 93.90 were too conservative as the low was just a little above 94 prior to the rally back to 95. There is no doubt that the performance of Chinese stocks, perhaps deflating some of the commodity currencies, has been helpful to the yen, but why is the yen losing to the USD. Japanese Euro bonds which mature tomorrow, are also given as a reason for yen strength, so again why is the dollar gaining on the yen. Perhaps the US Treasury auction is part of the mix, but we are approaching month end and the speculators now have a massive long yen position. In the event they blow some of these positions the dollar could rally up to the 97 handle prior to month end. Try to scalp the long side with a 94.50/.75 entry level but watch closely. There are some big players in this market and their entry and exit might not be very graceful.

Bias: Higher Bias Term: Medium Support: 94.40 93.20 92.50 Resistance: 94.90 95.30 95.70

 USD/CHF Commentary and Trade Ideas

It looks like some of the speculators who were long the franc and short the dollar are getting run in prior to month end. Currently we are trading at 1.0890, 200 points higher than the beginning of the week. Last week's COT report exposed the massive spec short futures position and I would guess that some have been buying their way out of the market. If the market retraces to about 1.0840, try the long side and see if the rally can continue to 1.10.

Bias: Higher Bias Term: Medium Support: 1.0800 1.0740 1.0650 Resistance: 1.0890 1.0940 1.1030

USD/CAD Commentary and Trade Ideas

The sharp 5% sell off in the Chinese equities markets and caution that the Chinese banks are going to stop stimulating, has taken a toll on commodities this morning. Crude is down over 3.50/barrel and all commodity numbers are currently red. Another story is that speculators, who played a big role in last year's run to $147 a barrel, may be headed to some position limits imposed by either the CFTC or the appropriate exchanges. The CAD is currently trading at 1.09 down from this morning's high of 1.0933. If the party is over for the CAD bulls then you can try to buy the dollar versus the CAD at 1.0850 area. Keep the stop fairly tight because the jury is still out trying to determine if this trend has changed.

Bias: Higher Bias Term: Medium Support: 1.0850 1.0800 1.0700 Resistance: 1.0900 1.0950 1.1050

AUD/USD Commentary and Trade Ideas 

Perhaps the .8337 high earlier in the week will be in place for a while as the pair has sold off into the support of .8150. The cheer leading by Australian Bank Governor Stevens has been negated by the Chinese bankers who are going to stop making loans. As we have pointed out for quite a while, a command economy can order immediate production increases, but finding of buyers for the products is a lot more difficult. Not sure how to approach this market. The spec is a big long and the commercial a big short. Who will the first to exit?

Bias: Neutral Bias Term: Medium Support: .8170 .8120 .8020 Resistance: .8260 .8390 .8500

NZD/USD Commentary and Trade Ideas 

 This week's high of .6633 has given way to a retracement to the current level of .6658. It remains to be seen if some of the commodity currency bulls will head to the exits. No trading suggestions.

Bias: Neutral Bias Term: Medium Support: .6550 .6510 .6420 Resistance: .6600 .6650 .6700

Published on  Wed, Jul 29 2009, 18:35 GMT