DOLLAR: The Dollar was clearly racked with selling in the wake of the Fed’s historic move and while that could ultimately serve to benefit the US export sector, it is possible that the sharp slide in the Dollar could spark protectionist moves from some foreign central banks! In fact, with the Swiss National Bank recently indicating they were looking to reduce their exchange rate versus the Dollar, the sharp slide in the Dollar represents a real challenge to their desires. As in the stock and the bond markets, it is difficult not to expect some form of follow through given the “shock and Awe” presence that seems to be in place after the Fed’s historic move. In fact, given the magnitude of the slide in the Dollar, we suspect that technical stop loss selling is a force that will continue to weigh on the Dollar during the trade today. However, the 84.00 level in the June Dollar index would seem to offer up at least some form of support, but in the current environment where major historical changes are being seen, one has to be careful in any attempt to fight the tape, or in this case, fighting the US Fed. One might suggest that the Dollar will remain weak until the trade begins to think that inflation, not slowing has become the biggest problem for the US economy.
EURO: With the explosion of the Euro in the prior trading session clearly violating a series of critical technical levels on the charts, we suspect that the bear camp is for a short time going to be rocked back onto their heels. Some traders see the 135.00 level as a critical pivot point, but for the time being the 135 level looks to become critical support, with the next initial resistance level seen up at 136.54. While we doubt that the June Euro is capable of a quick return to long term down trend channel resistance line up at 139.74, that resistance level does fall to 139.54 by early next week. In short, the bias is up in the Euro, as it settles in above the 135 level.
YEN: Surprisingly the yen managed an explosive rally in the face of a wave of euphoria in a number of markets. In other words, the Yen was up and overall conditions weren’t exactly screaming flight to quality buying. However, some traders see the prospect of rekindling inflation ahead and that apparently pushes some money back toward the Yen. Near term resistance is pegged at 105.00 but that level could become support quickly in the coming trading sessions.
SWISS: The Swiss exploded to the 88.00 level and it would appear that the June Swiss has a gap area partially above the market at 88.50 to 88.98. It is possible that the Swiss could begin to get some speculative buying off the inflationary ramifications of the Feds move and that could ultimately set the June Swiss up for a rise to the 90.00 level.
POUND: There is little in the way of resistance in the Pound until the down trend channel line at 145.04, but that level falls down to 144.88 on Friday morning. However, we suspect that the Pound is poised to see the least impressive rise off the weakness in the Dollar, because the UK has a very similar economic condition to the US, and sustained slowing in the UK economy could mean that yields in that currency might remain low for longer than many other areas.
CANADIAN DOLLAR: It goes without saying that the Canadian got one of the biggest bangs out of the US move. In addition to helping the commodity component of the Canadian, the aggressive wave of stimulus from the US clearly benefits Canadian interests as a major trade partner. With the Dollar strength over the last six months pounding the Canadian, the sharp slide in the Dollar, now looks to prompt noted long term short covering buying in the Canadian. Near term resistance in the June Canadian is seen up at 81.17.