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DOLLAR: The Dollar has shown periodic strength but we just don’t get the impression that concern for the global economic outlook is going to be bad enough, to definitively sustain gains on the Dollar Index charts. However, it would seem as if a large portion of the G8 is interested in talking up the Dollar, (because a weaker Dollar will boost the Euro and hinder the European recovery effort) and therefore the Dollar might show some near term strength, but we doubt that the June down trend pattern in the Dollar has run its course. In fact, the June 30th Commitment of Traders with Options report for US Dollar showed the Non-commercial position to be net short 6,816 contracts, with the Non-reportable position net short 1,607 contracts, and that made the “combined” spec and fund position net short 8,423 contracts as of early last week and therefore the technicals in the Dollar remains somewhat oversold and that could allow for temporary bounces ahead. However, we would suggest that position traders wait for a return to 81.16 in the September Dollar Index to get short the Dollar. We suspect that a favorable Treasury auction today could provide the Dollar with some minor lift but that the majority of the strength in the Dollar will come from jaw boning ahead of the G8 meeting.
EURO: While we don’t think that the Euro has ended the June up trend pattern on the charts, we do think that the Euro is going to have a difficult time carving out additional near term gains. However, seeing German Manufacturing readings for May forge a slight improvement and seeing economists conclude that the German economy is getting beyond the worst of the recession, could put the Euro in a position to make gains against the Dollar later in the week. Up trend channel support is seen at 138.86 today, with that trend line support rising to 139.08 on Wednesday. The June 30th Commitment of Traders with Options report for Euro showed the Non-commercial position to be net long 17,494 contracts, with the Non-reportable position net long 7,400 contracts, and that made the “combined” spec and fund position net long 24,894 contracts as of early last week. As in the Dollar, we would prefer to buy the September Euro on a set back to 138.86.
YEN: The September Yen continues to waffle around in sync with the global equity market outlook. With stocks making a slight recovery bounce at the end of the trading session on Monday and international equity markets showing periodic strength overnight that could leave the Yen in a slightly weak posture today. However, given the suspicion on the track of the global recovery effort and the idea that the US economy might need a second stimulus package, we doubt that the Yen is going to completely abandon the upward tilt seen for most of the month of June. We would suggest that traders look to be buyers of a near term break back down to 103.70 in the September Yen contract.
SWISS: While the Swiss might forge periodic aggressive recovery bounces, we doubt that the September Swiss will throw off the pattern of lower highs and lower lows that have been seen since June 2nd. Traders should look to the 92.53 level in the September Swiss, as a place to implement fresh short side plays.
POUND: We suspect that the Pound is going to remain in a downward motion on the charts in the near term. While periodic attempts to recover in the equity markets might give the Pound temporary respite from the selling pressure, we suspect that prices are set to work lower over the coming 5 trading sessions. With a UK May manufacturing output reading overnight coming in down 0.5%, off expectations of a +.2% gain, it is clear that expectations toward the UK economy are simply not being met. We would suggest that traders look to get short the September Pound at 163.21 for an eventual continuation on the downside pattern.
CANADIAN DOLLAR: While the Canadian might show some recovery action today, we don’t get the impression that the Canadian is set to throw off the downward bias that has been in place since June 1st. However, interest in commodity shares and the prospect of a consolidation in world equity markets just ahead might give the September Canadian the temporary capacity to respect consolidation support of 85.92. It could take news of a second US stimulus package to put in a solid bottom in the Canadian Dollar.
TODAY’S MARKET IDEAS: We suspect that the Dollar will firm into the G8 meeting but then fail again later in the week.
