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DOLLAR: With the US equity market showing a definitive range up extension and earnings reports beyond the banking sector showing positive readings, the flight to quality status of the Dollar has been injured. In fact, we doubt that the Dollar will see a reprieve from the selling in the wake of the US Industrial Production readings this morning as the market is currently of the opinion that the US recovery continues, even if the pace of the recovery is thought to be very slow. Unless the markets are tripped up by the scheduled data flow or there is a fresh financial sector threat seen, we have to think that the path of least resistance is set to remain down in the Dollar. Near term downside targeting in the September Dollar index is seen at 79.56, with closer-in resistance now seen at 80.00. We even suspect that FOMC meeting minutes (to be released late in the trading session today) will provide the currency market with ongoing selling impetus in the US Dollar.
EURO: With a much softer than expected Euro zone inflation readings this morning, paling in comparison to the ultra hot US inflation readings yesterday, it would certainly seem like the US has the macro economic differential edge. However, it would also seem like the currency trade is content to be long the Euro for a bigger return, in the wake of a gradual world recovery track. With a distinct pattern of higher lows on the Euro charts and the market poised to see a series of Chinese economic readings tonight, we suspect that the September Euro is poised for a rise to 141.52. Up trend channel support in the September Euro is now seen at 139.42 with that support climbing up to 139.65 on Thursday.
YEN: The September yen remains under liquidation pressure in the wake of the macro economic upgrade that has gripped the US markets. Therefore, the market is seemingly justified in the liquidation of the Yen. Unfortunately for the Yen longs, the big range up move last week has left the September Yen without much in the way of close-in support on the charts. Near term downside targeting is seen at 106.64 and possibly down at 106.24 on Thursday. In the event that macro economic optimism is given a further boost by tonight’s Chinese economic readings, that could mean an even lower downside targeting in the Yen on Thursday of 106.00.
SWISS: The Swiss has exhibited some wild two sided trade in the last 24 hours and it would seem like the currency might be poised to come back into favor. Like the Euro, it would seem like the Swiss is set to benefit from the improved macro economic outlook and that could mean a distinct upward adjustment in the coming 24 hours of trade. However, the risk and reward of being long the Swiss is somewhat suspect, given the quasi downside breakout attempt that was eventually rejected in the prior trading session.
POUND: While the Pound would be expected to benefit from the mostly favorable macro economic environment this morning it is clear that UK data this morning got in the bull camps way. With slightly weaker than expected UK employment situation, it is possible that the Pound will need to see a more definitive upward extension in the equity markets to mount a full return to the top of the June/July consolidation zone. We can’t argue against more near term gains in the Pound, but like the Swiss, the Pound has a somewhat suspect risk and reward setup in the current situation. In other words, the path of least resistance is pointing upward, but in the event that the economic optimism is derailed, the trade might hit the Pound very hard.
CANADIAN DOLLAR: With another new high for the move overnight, the bull camp seems to have retained the edge in the Canadian. There might be little in the way of resistance in the September Canadian until the 88.93 level and we would suspect that support has moved up to 88.28. Those long the Canadian should realize that China could release some fairly important data tonight.
TODAY’S MARKET IDEAS: Expect the Dollar and yen to continue losing to the Euro, Pound and Canadian.
