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DOLLAR: The Dollar Index has managed a quasi upside breakout on the charts overnight and that move appears to have come off renewed flight to quality interest. In fact, with a series of very discouraging international economic readings overnight and the equity markets not being lifted by reports that are up beat, it would seem like many markets are embracing concerns of a failed or slower than expected US recovery. Some traders might be buying the Dollar off ideas that the US Fed is poised to change its rate policy on Wednesday but that view would seem to be premature. However, in the current environment the path of least resistance in the Dollar looks to be pointing higher and flight to quality buying and or interest rate differential buying look to be temporarily back in vogue. Keep in mind, we are not overly impressed with the Dollar prospects, but a combination of technical short covering and temporary anxiety over the direction of the global economy could give the Dollar a temporary lift. Near term upside targeting in the December Dollar Index is seen up at 77.25, with solid support moving up to 76.60.
EURO: With a noted range down extension in the Euro overnight, the December contract has violated a series of key chart support levels. With a very discouraging set of economic predictions floated from the EU overnight, and a series of discouraging economic readings seen from outside of the Euro zone, the fear of a failed recovery or perhaps just a much slower than expected global recovery, seems to have settled into the currency markets. With the Euro recently the leadership currency and the Euro really benefiting at the expense of Dollar weakness for several months, it would seem like the tables have been turned and that could set the December Euro up for a quick return to the sub 145 level. While the December Euro might see some temporary support at 145.87, we see the trend this week in the Euro to be down.
YEN: The yen is at least initially holding together this morning and given the potentially overbought fundamental condition in the Euro, Swiss, and Pound, we have to think that the Yen and the Dollar are set to win by default. It is possible that the Yen is capable of garnering some support from news of strong bank lending activity in China. Therefore, critical support in the December yen is seen at 110.84 in the short term and a run at the 112.00 level is possible, if the Yen becomes a port in a storm of fears that the global recovery is indeed in question again.
SWISS: Some traders suggest that central banks only intervene when the market is going in their direction and given the downside washout in the Swiss overnight, perhaps the SNB should now step in and facilitate the slide. However, the short term impetus in the Swiss is seemingly coming from a “failed” recovery mentality and given the action in global equity markets recently and the expectation of slack US numbers at the end of the week, we suspect that the December Swiss is poised for a sub 96.00 trade directly ahead.
POUND: So far, the Pound hasn’t seen much in the way of downside action off what appears to be a let down in macro economic sentiment. With the UK forcing several large banks to downsize, it would seem like the repair to the financial sector is going to be made even more difficult. With world equity markets also showing signs of forging a moderate correction, the bank breakup notice and the BOE expected to expand their quantitative easing efforts again there would seem to be a number of reasons to push the December Pound into a downside breakout below critical chart support of 162.45.
CANADIAN DOLLAR: So far, the Canadian hasn’t forged a downside breakout on the charts and that is somewhat surprising considering the deteriorating macro economic view from the overnight newswires. With the Dollar forging an upside breakout on the charts and a host of key Canadian commodities under distinct pressure, we see the prospect of a slide in the December Canadian down to the late September consolidation lows around 91.05.
TODAY’S MARKET IDEAS: The new leadership is the Dollar and Yen, with the Euro the most vulnerable from a technical and fundamental perspective.
