Wednesday, May 09, 2007

Currencies update 09 May 2007

Interesting changes in currencies over the past few days so I thought it was important to update you.

First, all currency ratio charts I monitor daily (USD/Aussie, USD/UK Pound, USD/Euro) have generated buy signals for the USD. This could be the first step in a rebound/recovery of some sort for the USD (click on charts to enlarge).

US/Aussie Ratio chart:

USD/UK Pound Ratio Chart:

USD/Euro Ratio Chart:

In looking that the charts of the USD, it looks like it is trying to consolidate at current levels. A preliminary buy signal has been generated on the 6 month line daily chart. A follow through with a PPO cross above zero and an ADX cross of the green above the red would verify the signal.
USD 6 Month Daily chart:

The PNF chart I monitor has generated a buy signal. Note the strong support on the chart at 81.3 and the breakout above 81.8.

Looking at the bigger picture, a 2 year line chart shows a potential falling wedge pattern. A breakout above this pattern would be very bullish for the USD. Also note the RSI is just moving out of an oversold condition, a bullish move.
How far this goes is yet to be seen. I will hold my Euro position for the next 2-3 days and see where this leads. Today is Fed meeting day so the markets may be indicating the Fed comes out with a somewhat hawkish statement. This would be dollar bullish but US economy (housing, bonds) negative. Will be interesting to see what they have to say in their statement.
It is hard to believe the USD could gain any sort of longer term traction given the current fiscal imbalances in the U.S. and the weakening economic situation. However, it is important to understand that manipulation of the currency markets by combined central bank activity (UK, Europe, Japan and US) could put an awful lot of shorts in a squeeze position (mostly hedge funds who have bet billions on a falling USD). In an effort to cover these shorts the dollar could get one heck of a spike. Just food for thought.
Will post if I move out of my Euro position.


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