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DOLLAR: The Dollar action surprised and shocked some of the trade in the prior trading session, as the bounce wasn’t definitively tied to a credible theme. The bulls will suggest that the prospect of the US exiting the aggressive stimulus posture was behind the bounce, especially since the US Treasury markets were bordering on two month lows on their charts yesterday. While the markets might like to see the Fed clarify their position on interest rates in a statement, the markets could get a sense at mid session today if the Fed is starting its unwinding process as Treasury prices are poised at a breakout point and the large auction today is a large enough event that the Fed probably needs to artificially support the auction for it to go off favorably today. In other words, the Fed will probably have to support the auction today or rate hike expectations will be lifted further. We think it is still premature to think that the Fed is going to let the economy fend for itself and that they will attempt to support the auction today. A 7 month old down trend channel resistance line is seen at 76.25 this morning and that could be seen as an extremely critical pivot point. We think that the dollar might actually rise above that level in the wake of the early Case-Shiller home price survey reading this morning but that the Dollar will fail in the face of the Treasury auction results just ahead of 12:00 central time.
EURO: The Euro was clearly undermined as a result of the miss timed assumption of rising US interest rates. However, the Euro bulls will probably wait until after the auction results today before gaining enough confidence to re-enter the long side of the Euro. On the other hand, holding the Euro back from some near term gains is the fact that the Euro zone money supply figures (and private lending) slowed in the most recent reporting period but that news was partially offset by a rise in French Consumer Confidence readings. In the short term, the direction of the Euro isn’t going to be determined by Euro zone growth expectations, as the direction of the Euro looks to be determined by the views of the Dollar. We don’t think that the Euro up trend has run its course yet, as the US still wants and needs a lower US Dollar. While up trend channel support isn’t seen until the 147.35 level this morning and that trend support rises to 147.50 on Wednesday, we suspect that the market will generally hold above 148.40 this morning, before catching a bid just ahead of 12:00 central time window.
YEN: The Yen did see another fresh new low for the move today but it has managed to reject that initial probe. We suspect that the Yen is now poised for a recovery bounce, especially if the Dollar falls in the aftermath of the US Treasury auction at mid session. However, the overall trend in the Yen looks to remain down, with down trend channel resistance in the December Yen seen up at 108.60 today. Sell a mid day rally today in the December Yen.
SWISS: Up trend channel support in the December Swiss is seen today at 97.93 and we see no reason for the up trend pattern in the Swiss to come to an end. However, favorable US home price readings early in the trading session might put the Swiss under some minor additional pressure before the US Fed steps up to support the Treasuries at mid session. Seeing the US Fed indicate that rates are going to be held down longer in the face of a large auction today, should rekindle buying interest in the Swiss later in the trading session.
POUND: The Pound seems to be poised to mount a bit of a recovery bounce, but it would not seem like the bounce is the result of a solid fundamental development. However, it is possible that the Pound is attempting to pre-position ahead of a resumption of Dollar selling, later in the Tuesday US action. Some might suggest that the Pound is rising off talk of favorable BOE recovery views, while others are suggesting that a rise in US home prices might reverse some of the negative sentiment lobbed at the US home builders yesterday. We don’t agree with the upward bias in the Pound, but there might be little resistance until the 165.00 level in the December Pound today.
CANADIAN DOLLAR: The Canadian Dollar remains under pressure in the wake of a noted Dollar bounce that in turn sparked a broad based liquidation in key Canadian commodities. However, we think that the US Fed will have to step up and support US Treasuries, which in turn should tamp down the idea that US interest rates are poised to rise. Therefore, aggressive traders should buy the Canadian today looking for a recovery bounce ahead.
TODAY’S MARKET IDEAS: It is too early for the Dollar to recover, unless the Fed lacks the capacity to control US interest rate expectations.
