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DOLLAR: While the December Dollar appears to remain entrenched in a downward track on the charts, it would also seem like the Dollar ranges are narrowing and the downside momentum is waning. While there doesn’t seem to be a reason to suspect a landmark change in the Dollar fundamentals, one has to acknowledge that there is the prospect of a slight change in the interest rate and or macro economic differential into the upcoming US Non farm payroll report. In fact, the press is starting to toss around the idea of exit strategies and that in turn might serve to take some of the selling pressure off the Dollar. However, in order to turn a very definitive down trend pattern around, probably requires something significant from the November jobs report. While we think there might be a slight decline in the unemployment rate in the coming report, it is likely that the market will also be presented with a slightly disappointing non farm payroll reading and that could mean that no significant shift in overall sentiment will be seen. In short, the trend remains down but the easy money has already been made by the shorts and we think that the remaining downside potential carries with it increasing risk. In fact, those that are short the Dollar index should now consider selling a slightly out of the money put and using that money to purchase protective calls. With some foreign central banks seemingly poised to act against the Dollar, we would not be surprised to see the next new low move repulsed quickly and for the Dollar to begin to rise away from that low into the US holidays in a long term short covering action.
EURO: The upward bias remains in place in the Euro into the opening this morning, as the trade is tossing around the idea that the ECB is also poised to announce steps to eventually exit its quantitative easing efforts. Apparently the trade thinks that the ECB is closer to extracting ultra aggressive easing policies than the US, and unless the US jobs report paints a very up beat picture on Friday, that would seem to be an accurate assumption. However, most traders think that the ECB will still leave rates unchanged today and therefore, the Euro looks to remain in a bullish bias but we have to think that the market will show some respect for the old high of 151.44, as that price is expected to prompt some intervention talk from ECB officials.
YEN: As we indicated early this week, the yen reached what seemed to be an excessive level in face of the Dubai situation last week and since a portion of the trade seems to think that a number of central banks are poised to exit ultra easing policies, one gets the sense that the carry traders are being scared out of positions. Those who took our advice, to buy yen puts, should look to bank a profit on those puts, in the event that the December yen falls down to the 112.00 level.
SWISS: Like the euro, there would not seem be to a reason to end the upward tilt in the Swiss in the trade today. However, we suspect that the Swiss National Bank will view any move to new high ground, as a troublesome development. On the other hand, with the trade generally expecting the ECB to leave rates unchanged today, there would not seem to be a reason to derail the entrenched trend in the Swiss today. Initial resistance is seen at 100.46 today but the bulls look to retain control over the trend in the action today.
POUND: The December Pound did manage another new high for the move overnight before the currency fell back. While the Pound seems to be getting a lift from ongoing bullish action in the equity markets and also because of the news that another US bank is poised to pay back its TARP funds, we are still skeptical of the Pound bull track. However, the trend is pointing up in the Pound but without distinctly favorable macro economic sentiment, the Pound could have difficulty maintaining its upward bias. In short, the Pound bulls might need something positive from the US data over the coming two trading sessions to maintain its upward bias on the charts.
CANADIAN DOLLAR: The Canadian Dollar seems to have lost a bit of upside momentum in the early going today. In fact, the Canadian has begun to forge a series of lower highs on the charts and that would seem to suggest that it needs something more than consistent equity market gains to extend its recent attempt to rally. In fact, the bull camp in the Canadian has to be disappointed with the failure to track tightly with the recent gains in the gold market. We see no reason to call for a slide in the Canadian today but the Canadian probably can’t ignore slightly disappointing economic data from the US in the coming two trading sessions.
TODAY’S MARKET IDEAS: We don’t expect a change in the Dollar trend, but we are entering a window in which the odds of a surprise turn have increased.
