The Hightower Report

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DOLLAR: The Dollar has been able to put the brakes on the recent slide, and has moved away from the recent lows. Sentiment for the Dollar has shown little improvement overall, so this recovery may be due more to a profit-taking move out of European currencies than to a change in trend. US economic numbers have weighted on the Dollar recently, generally being weak but not bad enough to provide a risk shock to the US equity markets. As long as most of the market headlines are being generated here instead of overseas, the Dollar is likely to stay on the defensive, with the chances of an extended recovery limited at best. Even so, the Dollar may be able to rally back to the 81.00 resistance level this morning, as long as there are no surprises from this morning’s US ISM Non manufacturing data.

EURO: The September Euro has lost upward momentum today, and drifted back below the 1.32 level. Today’s Euro zone economic numbers may not have been that bad, but they were more than enough to slow down this current rally. With most of the market’s attention on the US lately, the September Euro may need another risk flare-up or some seriously negative economic news in order to derail the longer-term up move pattern. While a descent towards the 1.3170 level may occur during today’s session, any further move below that area may be difficult without fresh concerning news out of Europe.

YEN: The September Yen continues to be the main beneficiary of the Dollar’s protracted weakness, and is now within striking distance of new 15-year highs. While safe-haven support has underpinned this move higher, there seems to be few fundamental reasons from the Japanese economy to justify this sort of currency rally. With a large portion of their economy tied to exports, it should be no surprise that there is concern from both the Japanese government and the Bank of Japan over the strength of this move. Today’s up move will likely hold during the rest of the session, but the chance for a sharp downside reversal are increasing by the day.

SWISS: Although fairly close to a new high for the move, the September Swiss appears to have lost upside momentum this morning and has begun to drift lower. Look for the September Swiss to continue moving lower this morning, but the Swiss should find support near the 95.75 level as this uptrend should remain intact.

POUND: The September Pound has remained near the top end of the recent rally, but has come under mild pressure from a private survey of UK service industries. Look for the September Pound to find strong support near the 1.59 area as another new high for this rally may occur later on today.

CANADIAN DOLLAR: The Sept Canadian has been able to hold above the 97.00 level, but has been sluggish in extending this move higher. Unless there is another risk flare-up, however, the Sept Canadian should find support near the 97.30 area, as this rally appears to have more strength than other recent up moves over the past few months.

TODAY’S MARKET IDEAS: While the Dollar has held its ground this morning, sentiment has shown little change so any potential for extensive gains may be limited at best. Look for the September Pound to post a new 6-month high later on during today’s session.

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DOLLAR: Although trading has been quiet so far, the Dollar has drifted higher this morning in anticipation of today’s U.S. Employment numbers. Much of that support has come from profit-taking in front of today’s numbers, with only the Yen following through with its current trend and making a new 10-month low overnight. A strong non Farm payroll number this morning is likely to cause broad-based Dollar strength, particularly against the Yen where economic conditions remain relatively weak. On the other hand, any sort of negative surprise with either the Non-Farm number or the Unemployment rate could trigger a selloff, with the Euro, Pound and Canadian likely to be the main beneficiaries. Although prices have fallen away from last week’s highs, the Dollar has only moved back towards the high end of its trading range from early February to late March. Whether it remains there could depend on how this morning’s numbers are received by a thin, pre-holiday market.

EURO: The June Euro has remained close to the high end of its recent rally off of last week’s lows, but profit-taking has caused it to slide lower going into this morning. With the recent positive tone of Euro-Zone economic numbers, and with the E.U. sovereign debt crisis fading towards the background, prices have been able to recover from their recent lows. This could change very quickly if we have a strong non Farm Payroll number, as the June Euro could head back to this week’s lows in a hurry.

YEN: The June Yen continued to head lower overnight as it produced a new 10-month low for a fourth day in the row. With deflationary pressure limiting the possibility for growth in Japan, the Yen has been particularly weak against the Dollar. While it would take a huge change in sentiment to reverse the current trend, prices may be vulnerable to a sharp short-covering rally if today’s numbers fail to match expectations. However, look the Yen to extend itself to the downside if these numbers are anywhere close to market forecasts.

SWISS: Yesterday’s massive selloff, in which the June Swiss went from 0.9587 to 0.9435 in 10 minutes, has scared the market to such an extent that prices have now found a new trading level well below yesterday’s highs. The rally up to new all-time highs against the Euro appears to have been the final straw for the Swiss National Bank, as it is likely that they finally made good on their earlier threats of intervention. With this activity taking precedence with the June Swiss, any reaction to today’s Employment numbers is likely to be muted.

POUND: This week’s rally in the Pound seems to have run out of steam, as profit-taking in front of today’s numbers appears to have prevented a test of last month’s highs. With the upcoming U.K. elections taking more of the market’s focus away from recently positive economic numbers, trading could get choppy and two-sided over the near future. However, weak Employment numbers on this side of the Atlantic today have the opportunity to lift the Pound well above its recent trading range.

CANADIAN DOLLAR: Surprisingly enough, it has been the June Canadian which has been the weakest currency against the Dollar so far this morning, as a move to new highs seems to have derailed by overnight profit-taking in front of today’s Employment numbers. With the strong correlation of the U.S. and Canadian economies, a stronger than expected Non-Farm Payroll number has the potential to send the June Canadian up beyond last month’s highs and close to parity with the U.S. Dollar.

TODAY’S MARKET IDEAS: Given the uncertainty over today’s Employment numbers, along with the illiquidity of pre-holiday markets, traders should lean towards using option strategies ahead of futures in order to limit their risk.

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DOLLAR: With the US Dollar Index managing a fresh new low for the move overnight, it is clear that the flight to quality concerns in the marketplace are currently minimal. However, we suspect that the Dollar might be poised to see a bit of a lift in the wake of the US Housing Permits release, as that reading is expected to be soft and that reading is sometimes considered a leading indicator for the US housing sector. We are not sure if the US Dollar is poised to react to the shifting political scene in the US and we are also not sure if the Dollar is going to be impacted by talk that China might be taking measures to lower their US debt holdings. However, seeing even a slight tempering of Chinese interest for US Treasuries, in the face of historic supply flow of US debt, can’t be a good thing for the US Dollar in the long run! At least in the near term, we see the prospect of further minor weakness in the Dollar, off a slight improvement in macro economic sentiment, but we really doubt that the overall pattern of strength seen in the US Dollar since the late November low is set to come to an end, especially since the Greece situation is apparently far from being resolved.

EURO: While the Euro technically showed a quasi upside breakout off a steep down trend channel resistance line overnight, the currency quickly failed at that level. With some news stories surfacing on various financial moves inside Spain overnight, we suspect that the fear of additional debt crisis developments in the Euro zone will continue to undermine overall Euro sentiment. We continue to think that rallies back to 137.50 should be considered a selling opportunity in the March Euro, especially if the press manages to dredge up any additional problems with EU membership maneuvers. It is even possible that slack US economic numbers will also manage to weigh on the Euro, as the Euro, Swiss and Pound can hardly afford to see any slower than expected recovery news from the US economy.

YEN: The March Yen continues to derive some measure of support from the 50 day moving average, but it would still seem like the technical bias in the Yen is favoring the downside. We also have to wonder if Toyota troubles are indirectly weighing on the Yen, as the Press seems to be pushing for the Toyota CEO to testify to the US Congress. On the other hand, with a shift in Chinese ownership of US debt, the Japanese have apparently become the largest holder of US government debt and therefore Congress had better tread lightly in their attempt to harangue a foreign corporation. In the near term, we don’t see a definitive downward thrust in the Yen, but we would expect to see a sub 110 Yen trade over the coming trading sessions.

SWISS: With a pattern of lower highs on the charts and ongoing negative internal macro economic sentiment, the bear camp looks to retain an edge in the Swiss. In fact, some press outlets suggested that the SNB was possibly acting to restrain the Swiss from further gains and that would in turn seem to suggest that the 94.00 level in the March Swiss has become some form of fundamental and technical resistance zone. While we don’t see the prospect of an aggressive thrust down in the Swiss, a series of downside moves still looks to be in the cards.

POUND: As we suggested earlier this week, the Pound has managed to benefit from the recent improvement in sentiment. However, without stepwise further improvement in views toward the US economy, we doubt that the Pound will be able to garner that much upward momentum. In fact, with some forces calling for Greece to respond to currency swap charges by the end of the week it is still possible that the Euro zone debt issue will serve to trip up recovery currencies like the Pound. We can’t argue against more minor gains in the Pound this morning but we are just not inclined to call for a sustained upward action in the Pound.

CANADIAN DOLLAR: While the Canadian hasn’t managed to forge a fresh new high for the move today, the bull camp might retain a slight edge. However, a slack UK employment reading, residual Greece currency swap fears and fears that China might be scaling back US debt purchases, are all forces that serve to temper buying interest in the Canadian Dollar. With a more mixed tone in physical commodity markets this morning and only a minor higher opening indication in US equities, that leaves seems to leave the Canadian with a very thin bullish edge. It would also seem like the Canadian is in need of a slight technical balancing after a rather stellar two week rally.

TODAY’S MARKET IDEAS: The Dollar generally remains the leadership currency as Euro zone issues are not being restricted to the back burner.

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DOLLAR: Not surprisingly the Dollar is lower this morning as concerns toward EU debt are apparently being temporarily pushed to a back burner position. However, the debt concerns haven’t dissipated they are just a little stale or perhaps temporarily over exposed. It does seem as if the recovery bounce in equities is serving to undermine the Dollar this morning, as higher equity price action gives off the impression of a trade that is going to be interested in slightly riskier investments. It is possible that favorable Coke earnings, a favorable US Treasury auction result and hope for the Senate Jobs bills could add to the downside tilt in the Dollar throughout the trade today. However, we doubt that traders will want to remain negative toward the Dollar beyond the US trading session today. Apparently the markets are currently of a mind that recent Greek maneuvers are capable of staving off more near term concerns and that also is prompting some long liquidation of the Dollar. We see the 80.00 level as a critical support zone, with longer term up trend channel support seen down at 79.46, but that up trend channel support line climbs up to 79.62 on Wednesday.

EURO: While the Euro is seeing some technical short covering buying in the early trade today, the scheduled number flow from the Euro zone wasn’t exactly overly beneficial to the bull case. In fact, a German CPI reading overnight actually declined by 0.6% and that would seem to point to deflation rather than inflation in the Euro zone. Therefore suggestions from Trichet that the EU needed to keep inflation expectations anchored, hardly serves to foment inflationary views toward the Euro. However, the Euro was certainly aggressively oversold into last week’s lows and a slight recovery effort in the equity markets today could allow for a temporary rise back above the 1.3750 level in the March Euro. In the end, we just don’t see the catalyst for an end to the downtrend pattern in the Euro.

YEN: News of a further tempering of the Greek situation and higher equity market action overnight has undermined the Yen from a flight to quality perspective. Up trend channel support is seen all the way down at 110.22 today, with that support level rising to 110.38 on Wednesday. In an indirect way, the Toyota problems could be a slight undermine to the Yen, but the biggest blow to the yen might come from a temporary unsustainable reaction to the upcoming US jobs bill.
Aggressive traders should be willing to sell the March Yen on any rally today back above the 112.00 level.

SWISS: Like the Euro, the Swiss was technically overdone around the lows last week and now the currency is due a temporary corrective bounce. At least for the near term, the Greece situation is apparently going to shift to a back burner status and that should also allow the Swiss to recover. Initial resistance is seen up at 94.00 but we can’t rule out a temporary rally back above that level in the coming 8 hours of trade. In other words, US corporate earnings, US auction results and the promise of another US jobs bill seems to have taken the Greece story out of the headlines.

POUND: Despite seeing some recovery action in other non dollar currencies this morning, the Pound is not showing much in the way of a bounce mentality. In fact, one might have expected the Pound to benefit from slightly higher equity market action overnight but apparently the Pound isn’t easily cheered. A widening of the UK trade deficit overnight seems to have undermined the Pound, as the trade took those readings as confirmation that the recovery progress in the UK is still very questionable. In short, the trend in the Pound looks to remain down with only a brief pause above the 1.55 level today.

CANADIAN DOLLAR: The Canadian is getting some temporary support from what appears to be a slight improvement in global macro economic sentiment. However, we just don’t see the fundamental news to suggest that equities, commodities and the Canadian are poised for sustainable upside action ahead. Therefore, aggressive and short term traders should consider getting short the March Canadian on a minor bounce today back to the 93.83 level.

TODAY’S MARKET IDEAS: Minor Dollar weakness early today, not an end to the recent uptrend pattern.

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DOLLAR: Despite news that Moody’s might have given Greece a decent shake on their Fiscal program overnight, the Dollar has managed to claw higher on the day. With the JAL bankruptcy overnight and a softer than expected German ZEW reading released overnight, it is possible that the US Dollar was seeing some macro economic differential buying, but that type of buying should have been checked by the news of more Chinese and Taiwanese tightening efforts. In looking ahead, the macro economic news flow is expected to be thin until Wednesday and Thursday and that could reduce the breadth of the daily trading range in the Dollar today. While the January 12th Commitment of Traders with Options report for US Dollar showed the Non-commercial position to be net long 33,550 contracts, with the Non-reportable position net long 2,887 contracts, that made the “combined” spec and fund position net long 36,437 contracts as of early last week. However, with the Dollar sitting marginally higher, than the level where the COT report was marked off, it is possible that the length of the Dollar positioning has become inflated somewhat. We see a critical pivot point in the March Dollar Index up at the 77.66 level and a move back above that level could project a near term rise to even numbers of 78.00. We think that a lack of up beat macro economic news from the Euro zone and also from the US will generally leave the Dollar with a slight edge.

EURO: With a downward bias in the March Euro early this morning it would appear that the bearish bias from late last week remains in force into the opening today. While the January 12th Commitment of Traders with Options report for Euro showed the Non-commercial position to be net short 15,925 contracts, with the Non-reportable position net long 4,837 contracts, that made the “combined” spec and fund position net short only 11,088 contracts as of early last week. Therefore, the Euro might be building a larger net short positioning, but that positioning isn’t extreme enough to take the negative bias away from the Euro. In fact, the macro economic and geopolitical news from the Euro zone recently has been disappointing and that should leave the March Euro in a position to fall down to the 1.4250 level. In fact, in the face of mostly discouraging global economic news, a low of 1.4215 could be seen this week.

YEN: The Yen is showing some signs of short covering and perhaps even some temporary outright buying. In fact, with a series of currencies losing their bid overnight, the fear of Chinese tightening and a Bankruptcy at JAL announced that could give the carry traders a fresh measure of confidence. In our view, one can’t rule out a temporary trading range of 111 to 110.00 in the March Yen early this week, but in the wake of the slightest improvement in numbers, we would suggest that traders look to add to shorts or continue to acquire long dated out of the money Yen put options.

SWISS: Like the Euro, the Swiss is clearly disappointed with the pace of the global recovery effort. With many global equity markets seemingly in a negative bias, it is likely that the trade will continue to pressure the March Swiss down toward the next consolidation support zone of 96.37. The Swiss bulls need something positive from the IBM earnings and or from the scheduled US economic readings, in order to throw off the modest downward bias that is in place.

POUND: With a massive range up breakout on the Charts, it would appear that the Pound is poised to win by default. Perhaps some very hot annualized inflation readings from the UK overnight have provided the Pound with its edge today but the lack of competition is perhaps the biggest element in the Pound bull’s camp. In fact, with little in the way of alternative leadership today, the March Pound could easily see a rise back above the 1.65 level in the coming two trading sessions.

CANADIAN DOLLAR: With the Swiss and Euro out of favor and the Dollar only showing moderate interest this morning, the Canadian is somewhat locked in place. However, one might have expected the Canadian to be under some pressure in the wake of the slackening global macro economic outlook, unless of course the trade sees the Chinese tightening moves, as a sign that the Chinese economy is strong enough, that the central bank is endeavoring to begin the battle against inflation. The March Canadian has close in support at 96.88 and we see no reason for that level to fail, unless global equity markets come under more definitive selling pressure ahead.

TODAY’S MARKET IDEAS: The only clear leadership markets are the Pound and the Dollar.

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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.

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DOLLAR: With another fresh new low in the Dollar, it is clear that the trade remains convinced that the US is going to be among the last to raise interest rates. With the US economic numbers also depicting ongoing slowing and the Fed not giving off any sign of removing the punch bowl from the party, there is no reason to call for an end to the slide in the US Dollar. With the Fed seemingly playing down the slide in the Dollar, as an orderly progression and little in the way of serious complaints flowing from foreign central bankers, there just isn’t a reason to fade an entrenched down trend pattern in the US Dollar. With another new record high in gold prices overnight, it would seem like money leaving the Dollar is flowing toward the safety of the gold market. With the trade generally expecting slack, but not excessively slack US economic numbers this morning and US stocks and bonds expected to grind out more gains, the slide in the Dollar doesn’t seem to be raising any alarms. Therefore, we suspect that the December Dollar is capable of a slide down to the next downside chart target of 74.10.

EURO: Not surprisingly the December Euro has managed a quasi upside breakout on the charts this morning in the wake of the latest new low move in the US Dollar. As suggested many times over the last two months, the action in the Euro looks to be dictated by the flow of US numbers and not by the flow of numbers from the Euro zone. However, with Italian consumer confidence readings coming in stronger overnight, that probably adds to the pre-existing upward tilt on the charts. The next resistance zone in the December Euro is seen up at 150.48 and while the 150 level was supposed to be a line in the sand for the EU ministers, we suspect that the December Euro is capable of a near term upside extension to the October high of 150.62 before the ECB begins to grumble.

YEN: The carry trade continues to dominate the action in the Yen, with the December Yen spiking upward overnight to the highest level since January. With the US expected to remain mired in a slowing posture and the Japanese recently fretting openly about sustained deflationary conditions, there would seem to be little change expected in the environment that is pushing money into the Yen in an effort to capture the carry spread. Near term support in the December Yen now moves up to 113.68.

SWISS: The December Swiss has managed another pulse up trade overnight and in the process, the Swiss has reached the highest level since July of 2008. With gold also rising into another record high zone, it is likely that the Swiss and Euro are seeing a measure of flight to quality buying. In fact, we suspect that the brunt of the buying in the Swiss is flight to quality buying, with the inflation buyers making up an extremely small portion of the trade. There is little resistance in the Swiss until the even number 100 level on the weekly Swiss charts.

POUND: A big range up extension in the Pound this morning, despite the fact that the UK posted what could have been considered a disappointing 3rd Quarter GDP reading. However, the contraction in the 3rd quarter GDP readings, wasn’t as bad as expected and therefore the Pound was able to benefit from the ongoing slide in the Dollar. While we think the Pound is facing the same challenges as the US and the US Dollar, the trade is apparently upbeat toward the Pound, as long as the exchange rate is below 167.50. We can’t rule out a run up to 167.93, but one should not be looking for fundamental justification for the upcoming run up in the Pound, as there would not appear to be a respectable argument for the rally.

CANADIAN DOLLAR: A definitive downside breakout in the Dollar and a sharp upward thrust in gold prices have clearly given the Canadian Dollar a major lift this morning. With the trade and officials seemingly content with the “gradual” decline in the US Dollar, there would not seem to be a reason to stop the December Canadian Dollar from managing a near term run back above the 96.00 level.

TODAY’S MARKET IDEAS: Expect all currencies to forge consistent gains against the Dollar today.

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DOLLAR: The Dollar has already forged a fresh downside breakout on the charts this morning and that leaves the down trend pattern intact despite signs that the US economy might be gaining some footing. Apparently the currency trade continues to doubt the pace of the US economic recovery and it also doubts that US interest rates are destined to rise anytime soon. It goes without saying that the world sees the push for US health care reform, as an ongoing burden for the deficit. In short, the market bias remains down toward the Dollar and even a measure of economic optimism doesn’t seem to temper the negative track in the Greenback. Not surprisingly, the Dollar showed almost no life in the wake of statements from Geithner overnight that the US wants a strong Dollar. The market also didn’t seem to buy into the Treasury Secretary comments that the US will eventually get its deficit under control. In short, the bear camp doesn’t seem to have any fear of a counter trend move. Near term downside targeting in the December Dollar is seen down at 74.15.

EURO: So far, the Euro hasn’t taken out the October highs, but the Euro has managed to rise above the 150 level, which in recent weeks, was pegged as an extreme exchange rate level by certain ECB officials. Given strong gains in global equity markets again overnight and generally positive economic data flowing from China overnight, that should leave the recovery currencies like the Euro with a definitive edge against the US Dollar. Near term support in the December Euro now moves up to 150.24 and there might be little in the way of significant resistance until the 150.62 level.

YEN: While the Yen managed an impressive range up extension overnight, that move was clearly rejected in a rather aggressive manner. The bull camp has to be disappointed that beneficial Chinese economic data failed to sustain a strong Yen, as that dampens the idea that the Japanese economy is going to draft off the Chinese economy. The yen also continues to show signs of weakness in the face of market environments, that show an increase in risk appetites and therefore we see the overnight highs in the Yen as really significant near term resistance. In fact, we see closer-in resistance in the December Yen over the coming 24 hours to be 111.36.

SWISS: The Swiss is seemingly poised to return to and above the old highs. Apparently the up beat global economic outlook has caused the Swiss trade to toss aside the threat of central bank intervention. After some initial resistance up at 99.71, the December Swiss is probably set to move to an even higher trading range in the coming trading sessions and that should in turn make the old highs critical support.

POUND: The BOE comments overnight seem to have taken the Pound out of the recovery currency mode this morning. In other words, the BOE suggested that their easing efforts are working, but that inflation looks to remain under control in the near term. In a real rally killer, the BOE also suggested that the chance of an absolute disaster had diminished and that clearly prompted traders to stand aside from the Pound to other less risky currencies. In the end, seeing the BOE remain in an excess easing posture, seemed to prompt traders to bank profits on a currency that has had a fairly aggressive run up off the November lows.

CANADIAN DOLLAR: A definitive range up extension in the Canadian Dollar overnight would seem to project the December Canadian back above the 96.00 level in the coming trading sessions. We suspect that ongoing defined down trend pressure in the Dollar and very up beat macro economic views toward the Chinese economy, plays right into the hands of the Canadian Dollar bulls. In fact, we can’t argue against a December Canadian trade of 96.93 in the coming week.

TODAY’S MARKET IDEAS: More down in the US Dollar ahead, with the Canadian, Euro and Swiss the primary benefactors of the currency market trends.

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DOLLAR: In certain measures the Dollar managed a fresh new low in the overnight action, even though the December Dollar futures seems to have held above the prior session’s low in the early going today. Apparently the Dollar can’t even muster support in the face of calls for higher rates, nor can the Dollar manage to gain in the face of slack US NAHB housing numbers. In other words, the Dollar isn’t getting anything but a negative reaction to the interest rate and economic differential arguments. However, there were some rumblings in the overnight headlines as the Euro approached the psychological 150 level and the Swiss looks to approach parity with the Dollar. While French officials expressed some concern about a 150 Euro exchange rate that dialogue didn’t seem to have any lifting influence on the Dollar overnight. In fact, if the markets begin to sense the prospect of intervention from either the ECB or the SNB we suspect that will result in action that attempts to ferret out the intervention and in this case that would mean a serious spike down move in the Dollar. Therefore, we see no reason to call for an end to the downtrend in the Dollar, with even more news lows likely in the coming trading sessions.

EURO: The Euro managed another distinct thrust into new high ground overnight but apparently the 150 level has become a fundamental and technical resistance zone. In addition to the December Euro rising to and promptly falling back from the 150 level, it seems that a French advisor to the French President has suggested that a 150 Euro would be a “disaster” for portions of the French economy. Up trend channel resistance in the December Euro is now seen at 149.92 and that resistance rises to 150 on Wednesday. While we think the trade is set to remain up, traders should watch the Euro’s reaction to the US Housing Starts and permits data this morning, as a weakening of the Euro, in the wake of those US figures might portend a temporary technical setback ahead.

YEN: With the Euro seemingly running into psychological resistance this morning, the Dollar weak and even the Canadian showing some corrective action, it is possible that the yen is poised to take a temporary leadership role. Given the magnitude of the early October washout in the Yen and the expectation of something positive from the Chinese economic reading front on Thursday, we have to think that the Yen is poised for more gains. A normal retracement of the early October slide in the Yen, would seem to project a rise back to 111.11 and perhaps even the 50% retracement level up at 111.60.

SWISS: The Swiss has managed another upside breakout in the wake of the latest Dollar failure and it would appear that the Swiss is headed toward parity. We suspect that an exchange rate above parity will spark intervention talk but until that time, the bull camp in the Swiss looks to maintain control over the currency. Near term up trend support in the December Swiss comes in at 98.80, with uptrend channel support a bit further off the market down at 97.96.

POUND: Apparently the bull camp was able to retain control of the Pound, as the Pound has managed a fresh new high for the move in the overnight action. Perhaps the Pound was lifted by favorable mortgage lending activity in September, or perhaps the Pound is just benefiting by default from the constant weakness in the US Dollar. While the path of least resistance in the Pound seems to be pointing up, we suspect that longs in the Pound have more relative risk than the longs in the Euro, Swiss and Yen.

CANADIAN DOLLAR: The Canadian Dollar appears to have become overvalued into last week’s highs. In fact, the Canadian was seeing what appeared to be a perfect storm of macro economic and interest rate differential support and with a flurry of Canadian numbers due out today, it is possible that the Canadian exchange rate may find it difficult to stand up to reality. In other words, the Canadian numbers today might have to be stellar, just to support the December Canadian Dollar above the 96.93 level.

TODAY’S MARKET IDEAS: No sign of a bottom yet in the Dollar, primary benefactors of the ongoing Dollar weakness are the Euro, Swiss and Yen.

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DOLLAR: The Dollar is showing some minor recovery capacity today and we assume that is the result of short covering and perhaps some minor speculative buying ahead of an avalanche of US data. Just as US Treasuries have benefited from general slowing expectations recently, we think that the Dollar is set to get some temporary buying interest in anticipation of a soft US employment number on Friday. However, any recovery in the Dollar should be considered an opportunity to get short the Index at a more comfortable level on the charts. In short, the markets have been favoring recovery views in the wake of gains in equities and also off favorable readings in second and third tier data, but unless the Payrolls are much softer than expected and the unemployment rate jumps by more than +.2% Friday morning we doubt that the currency trade is going to consistently buy the Dollar off the idea that a double dip recession is starting to unfold. However, a hint of intervention from the ECB overnight is an issue that could add some temporary buying interest to the Dollar trade today. A normal retracement of the July through September washout in the Dollar, would allow for a recovery to 77.59, but we think the December Dollar has a temporary capacity to rise to the 50% retracement point up at 78.10.

EURO: The Euro is probably going to remain in a downward tilt for the coming 24 hours of trade as the markets fret over the prospect of sloppy numbers from the US. Adding into the downward tilt in the Euro this morning are hints that Euro zone officials aren’t entirely happy with the rate of appreciation in the Euro. However, comments from the ECB head about removing stimulus would seem to put the Euro in a very bad fundamental position in the eyes of the marketplace. Near term downside targeting in the December Euro is now seen at the 145.00 level but given the negative start today, the ECB dialogue and the fact that we have another 24 hours before the key US number on Friday morning, we now suspect that the December Euro will see at least a temporary slide below the 145.00 level.

YEN: Despite another favorable Tankan survey report overnight the Yen is at least temporarily caught in a vortex of volatility and that could mean more counter trend action in the coming 24 hours of trade. Unfortunately for the bull camp in the Yen, up trend channel support in the December Yen isn’t seen until 109.63 today, with the support level rising to 109.82 on Friday. The up trend hasn’t ended, but some counter trend action looks to be directly ahead.

SWISS: After the significant volatility of the last two weeks, the weak action in the Swiss has probably put a number of longs in a very uncomfortable position. Since the SNB was the most vocal intervention threat against the Dollar recently and the markets saw some intervention speculation from the ECB overnight, it would appear that the intervention angle has become a definitive benefit to the bear camp in the Swiss. One also has to think that the track of macro economic news is another element that favors the bear camp in the Swiss. Near term downside targeting is seen down at 95.61.

POUND: After a noted bounce off the lows early this week, we have to doubt that the Pound will continue to benefit from a series of slightly disappointing economic data points from the US. We also think that the Pound generally remains a recovery currency and that the Pound won’t fare well in the coming 24 hours of trade. Near term downside targeting in the December Pound is seen at 158.68.

CANADIAN DOLLAR: Like the Pound, the Canadian managed a pretty impressive recovery bounce over the last three trading sessions and that could leave the Canadian overvalued into some pretty important data flows directly ahead. With the Canadian sitting within relative proximity to the last three months highs and the currency also sitting in the upper portion of a long consolidation pattern, we would suggest that the bulls need some distinctly beneficial US readings in order to hold up on the charts. If you are long the Canadian, bank profits or secure temporary put protection.

TODAY’S MARKET IDEAS: Expect temporary short covering action in the Dollar directly ahead.