DOLLAR: After showing some initial strength this morning the Dollar seems to have fallen back from its highs into the US session. With no scheduled economic data out from the US today, the currency markets will have to garner their direction from the kick off to the US earnings cycle and perhaps the ebb and flow of talk from Washington on the massive stimulus package. With the January 6th Commitment of Traders with Options report for US Dollar showing the Non-commercial position to be net long 5,525 contracts, with the Non-reportable position net short 798 contracts, that made the “combined” spec and fund position net long 4,727 contracts as of early last week. With the sharp slide in the wake of the COT report last week, we suspect that the Dollar around last week’s lows was mostly balanced technically and that might serve to keep some of the pressure off the Dollar early this week. In the near term, we suspect that the markets will be looking for the biggest government stimulus effort and that money will flow toward that currency. While the Germans are making noised about a plan, the US seems to be out ahead of the pack. In short, a slight upward bias in the Dollar is expected this morning, as the scheduled corporate earnings news won’t be released until after the stock market close today.
EURO: With the Euro initially forging a fresh new low for the move overnight and making the slight decline in the wake of the somewhat poor US unemployment report from last week, we have to leave the path of least resistance pointing to the downside in the Euro. Critical support in the March Euro this morning is seen at 132.83, but even lower support down at 132.50 is possible this morning in the wake of weakness in global equity prices this morning. While the January 6th Commitment of Traders with Options report for Euro showed the Non-commercial position to be net short 4,210 contracts, with the Non-reportable position net long 14,627 contracts, that made the “combined” spec and fund position net long only 10,417 contracts as of early last week. However, with the Euro in the wake of the COT report falling as much as 200 points, below the level where the COT report was measured, we suspect that the Euro is now seeing only a minimally overbought technical position. As suggested in the Dollar coverage this morning, we suspect that money will continue to pull away from the Euro zone, unless an overly aggressive stimulus plan surfaces from the Euro zone.
YEN: The Yen seems to be picking up renewed flight to quality buying again and that isn’t surprising considering the overall state of the global economy. In fact, seeing the March Yen reach back to the highest level since December 29th this morning clearly seems to suggest that the bulls are in control. The old up trend channel support line up at 111.86 is possibly a target for the March Yen, but without an active US report flow today to fan the concerns of US slowing and in turn kick up aggressive flight to quality buying interest in Yen, it could take a couple days for the Yen to approach the 112.00 level.
SWISS: Like the Euro, the Swiss remains out of favor and until there is a reason to shift macro economic psychology in the Swiss economy into a more optimistic posture, we have to leave the edge with the bear camp. In fact, we would be surprised if the March Swiss was unable to reach down to a prior key low down at 88.70 in the coming trading session. Not even a favorable interest rate differential expectation between the Swiss and the Euro zone is serving to support the Swiss and that would seem to leave the bias pointing downward in the Swiss.
POUND: The honeymoon in the Pound appears to be over as the markets continue to grabble with the prospect of more serious slowing ahead in the global economy. While the Pound could have been supported by CBI calls this morning for some form of guarantee for UK bank loans, the Pound enters the session today significantly above the late December lows and given the prospect of even more severe slowing ahead, we have to think that the Pound will retest 145 before it returns to last week’s highs.
CANADIAN DOLLAR: Like the Pound, the Canadian seemed to have become overbought recently and out of touch with the evidence of severe global slowing being presented in the marketplace. With precious metals and energy prices weaker this morning and the US Dollar showing signs of initial strength, we have to think that the March Canadian is poised for a slide back below 82.50 early this week.
