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DOLLAR: The Dollar appears to be holding just above the prior lows as if it is waiting for the final judgment on the Greek 10 Year debt offering. At least from the early indications, the debt offering went off fairly well and when one combines that sentiment, with the potential for decent US economic news, that could leave the bear camp with the near term edge in the Dollar. However, the Dollar might not fall aggressively because of the presence of the ultra critical US Non Farm payroll report on Friday morning. It is also possible that the Dollar is set to get some minor support from the latest Chinese tightening effort, but that support will probably be totally washed away because of another push in the US for the Volcker rule. In our opinion, pushing for the Volcker Rule should mean that some money will decide to flee the US Dollar. In conclusion, the bearish items seem to easily out number the bullish items, with favorable US data likely to continue lifting oversold Non Dollar currencies. Critical support in the March Dollar index is seen at 79.97 but a decline down to 79.75 would not be surprising today.

EURO: The Euro was recently oversold technically and perhaps under excess fundamental pressure. While the final results might offer up a surprise, the initial results from the Greek debt offering seem to have been good enough to keep anxiety levels low and that could provide the Euro with a further short covering lift. Unfortunately, Euro zone GDP readings overnight showed a gain of only +0.1% and the trade saw fresh Chinese tightening moves overnight and that seems to be limiting the Euro in the early going today. However, the Euro needs help to rally and we doubt that the rate decision from the ECB will offer any surprises, but we do think that favorable US numbers could prompt some additional buying of the March Euro. Initial support in the March Euro is seen at 1.3654 and there is a chance of a fresh new high for the week if the US numbers are positive.

YEN: The March Yen managed another range up move in the overnight action but it would appear that the Yen is managing the gains off information that might have been seen as bearish earlier in the week. Perhaps news of an earthquake in Taiwan overnight provided the Yen with a lift and perhaps the currency trade is expecting a disappointing US Non farm payroll reading on Friday morning. In any regard, we have been suggesting all week that the Yen was capable of rallying sharply this week and it wouldn’t be surprising to see a spike high and failure above the 114 level.

SWISS: The Swiss seems to be poised to rally but we get the sense that the rally would be mostly technical short covering. However, a temporary calm in the Greece situation and improved economic views toward the US recovery would probably prompt the March Swiss to rally back above the 94.20 level. For the time being, being long the Swiss is like being long the world economic outlook.

POUND: The Pound continues to benefit from a leveling of the Greece debt crisis and perhaps because of a slight improvement in the US economic outlook. In retrospect, one might also suggest that sentiment toward the Pound and the UK economy was really negative early in the week and therefore some short covering is deserved in the Pound. However, a UK Halifax house price reading for February fell overnight and therefore the bull camp in the Pound probably needs some help from world equity markets and also from the US economic report front. The March Pound would seem to have little resistance until the 1.5150 level, but being long the Pound, might mean really good numbers lift the currency slightly, while slack numbers resume aggressive selling interest.

CANADIAN DOLLAR: The Canadian Dollar remains in a bullish fundamental and technical posture. However, the Canadian is somewhat short term overbought and seemingly in need of a patently supportive US economic report flow to manage more gains straight away. The Canadian is sensing forward progress on the global economy, but we are a little uncomfortable suggesting fresh long plays in the upper quarter of the last 5 1/2 month trading range. Long term, we are bullish but buying at this level on the charts feels risky.

TODAY’S MARKET IDEAS: The bias in the Dollar would look to remain down especially if US numbers are decent and the Greek debt auction is deemed to be mostly successful.

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DOLLAR: The Dollar Index continues to maintain a bullish tilt on the charts, despite lingering concerns for the pace of the US recovery. However, ongoing concerns toward the Greece situation has provided the Dollar with a bid in the overnight action. While a sloppy or slack US Durable goods report might restrict the upside in the Dollar today and the Dollar might also be undermined as a result of a marathon televised Washington political debacle, the bias looks to remain up in the Greenback. In other words, the economic and political outlook inside the US isn’t overly impressive, but apparently the outlook and condition in the Euro zone is even worse. In fact, overnight the Euro zone saw economic sentiment decline for the first time in 11 months and S&P has warned of a possible downgrade of the Greece debt rating. Some sources are suggesting that a downgrade of the Greek credit rating will cancel out the budget slashing efforts that are already causing violent protests. With a Greek official reportedly lashing out against the Germans and also maligning the EU leadership, it is clear that tensions are running pretty hot. Therefore, the Dollar looks to continue to get the benefit of the doubt on its economy, because of a more powerful flight to quality influence. Critical up trend channel support is seen at 80.36 but a closer in support level is also seen at 80.86.

EURO: As suggested already, the situation in Greece continues to undermine the Euro at the same time that Euro zone economic readings depicted a lack of internal confidence. With the EU overnight, releasing a series of growth forecasts on its members, it is clear that investors aren’t going to rush to invest in the Euro zone for high rates of return. We think the lashing out from a lower level Greek official is an indication that the bailout package being offered from the Euro zone is a paltry offering. Therefore we see a series of lower lows ahead in the Euro, with the next critical chart support level not seen until the 1.3420 level on the weekly Euro chart.

YEN: The Yen continues to benefit from the turmoil in the Euro zone and also because of the confusing situation in the US. Therefore a certain amount of flight to quality uncertainty is expected to flow toward the Yen. In fact, with a “ratings agency” giving the Japanese a left handed compliment, by suggesting that the Japanese situation was not at all like the Greek situation, it would seem like the bulls in the Yen are getting help from the headline spin. Near term upside targeting is seen up at 112.61 and the bull camp looks to remain in control.

SWISS: Once again the Swiss remains vulnerable to spillover pressure from the Euro. While the trade continues to talk about the threat of intervention from the SNB, there doesn’t appear to be a need to intervene as the down trend in the Swiss looks to be entrenched. Down trend channel resistance is seen up at 92.93, with the odds looking really good for the lowest trade in the March Swiss since June of 2009.

POUND: A definitive range down extension in the Pound overnight highlights a deteriorating global recovery view and perhaps even renewed concerns toward the debt situation in the UK. The UK debt situation was temporarily forgotten in the face of generally upbeat economic views but now that the recovery view is tempered somewhat the debt fears have returned. Apparently BOE dialogue continues to add to the selling pressure in the Pound, as the trade sees the need to extend quant easing, as a sign that the UK economy remains in a pickle. One has to go to the weekly charts in the Pound to find the next support level down at 1.5113.

CANADIAN DOLLAR: Like the Pound, the Canadian is being undermined by sagging macro economic views. If the US economy remains slow, Greece remains a threat and the Chinese are still thought to be on the cusp of more tightening, a recovery currency/commodity currency like the Canadian, is probably going to remain out of favor. There should not be a lot of pressure on the Canadian, but the Canadian should work consistently lower on the charts.

TODAY’S MARKET IDEAS: The Dollar and Yen look to continue to win by default.

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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: The Dollar has shown definitively bullish and definitively bearish tilts this week. As in the world equity markets, the currency markets are facing a significant amount of uncertainty in the US, with respect to government policy, taxation, spending, clean air and perhaps several other issues that should be nowhere near the front burner. In the end, the pace of the US economy doesn’t seem to support a distinct flow of fresh capital toward the Dollar, but the lack of a definitive alternative has seemingly kept the Dollar well bid this week. In fact, the Dollar bulls seemed to buy into the idea that the US would actually live up to promises to limit spending. Like the US stock market, we have trouble being bullish toward the Dollar off the current track in the US economy. One would also think that seeing the US Federal Reserve remain on hold again today would be negative for the Greenback. Getting away from politics, Obama would seem to need to bring down the level of policy uncertainty for the US Dollar and for most US assets to be held in consistent favor. We get the sense that the Dollar is expensive above 79.00.

EURO: While the March Euro actually managed another new low for the move overnight, the currency did manage to reject that slide. However, the Euro remains just above the downside breakout point and while the German government gave some positive economic views overnight, the 2010 German GDP forecast for a gain of only 1.4% hardly looks to attract an aggressive influx of investment. The one thing the Euro does have going for it, is a lack of political wrangling and to a degree, that has probably served to limit the amount of selling pressure on the currency. We seriously doubt that the March Euro is going to avoid at least a temporary slide below the 1.40 level. The biggest hope of the Euro bulls, has to be that the US is poised to step on its own tail in the State of the Union address tonight.

YEN: As we predicted, the March yen managed a rise back above the 112.00 level and we would not think that the upside action has fully run its course yet. In fact, until one can get bullish toward the US equity market, we suspect that the bias in the Yen will remain up. If the Obama Administration lights more fires than it puts out in the speech tonight, that could see the Yen reach up to the 113.50 level before the end of the week. It is still too soon to add to long term Yen put plays.

SWISS: After a fresh new low for the move was rejected overnight, one might get a technical sense that the Swiss has bottomed. However, for the Swiss to bottom probably requires a distinct improvement in the global macro economic outlook and we are not sure if that is in the cards over the coming 36 hours. The March Swiss might need to fill a gap on the charts, with a temporary slide back down to 94.85.

POUND: A pattern of lower highs on the charts would seem to leave the bear camp with an edge today. So far, predictions calling for an annual rise in UK CPI figures had little impact on the Pound. It does seem as if the Pound was bid up off BOE dialogue, that suggested 4th quarter UK GDP figures might come in stronger than initial expectations. Like a number of other currencies, the Pound bulls would seem to need a turn up in global equities, just to throw off an entrenched downward bias.

CANADIAN DOLLAR: While the Canadian has managed to avoid a fresh new low for the move overnight and the BOC offered up some very valuable advice on Bank Reform overnight, the current market isn’t capable of fully checking the slide in the Canadian. Against a back drop of Chinese tightening fears, confusing US policies and a lack of distinctly upbeat economic readings, that would seem to leave the key Commodity currency, the Canadian out of favor. The best thing that can happen for the Canadian bulls, is to see a misguided ongoing washout in the March Canadian down to 93.00 and then one might be able to re-enter the long side of the equation.

TODAY’S MARKET IDEAS: Expect the Yen to remain well bid until the latest track of US policy initiatives is unleashed on the marketplace.

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We continue to stand by the view that a short position in the Japanese Yen will be a consistent and perhaps significant play in the coming year. As we have mentioned in prior issues of this newsletter, we think the Yen saw an undeservedly dramatic appreciation due to the sub-prime crisis and that global interest rate anomalies served to boost the Yen to levels that would never have been possible based solely on interest rate and economic differentials. We also think that the Yen was given an additional and possibly final boost into the overvalued atmosphere in the wake of the Dubai credit crisis. From the late 2009 high to the January low, the March Yen already mounted a slide of 900 points, highlighting how overvalued the Yen got. While it has managed a bounce off its January low, the Yen still remains 2900 points above the mid 2007 lows.

It is also our opinion that the global interest rate anomalies drew what could be one of the largest speculative inflows to a single trading theme in history in the form of the “carry trade” and that the unwinding of the those positions could exert significant pressure on the Yen. While there are certainly many reasons this bearish outlook could prove wrong, perhaps the most painful would be if the world economy were to fail to recover. However, in the event that the global economy does continue to recover and more countries move to raise interest rates, we think the onus will be on participants in the carry trade to unwind their borrowing of cheap money in the US that they used to invest in higher yielding instruments in Japan, which would force them to buy dollars and sell Yen. While it is always possible that the Japanese economy could throw off its decade long deflationary condition and begin to grow aggressively, we don’t see that as a likely prospect. Therefore, we will continue to suggest that traders use moves back above the 110.20 level in the Yen to implement longer-dated, somewhat out of the money Yen put positions.

After seeing a 7 year pattern of declining Dollar action, it was logical for the Dollar bears to be a little concerned about the January 2008 to March 2009 recovery effort. However, we would suggest that the subsequent return back near the 2008 lows and then the rejection of that weakness might be a sign that the Dollar found some form of low value zone. In addition, considering the number of negatives that have been lobbed towards the Dollar over the past year, one would have expected a full return to the 2008 lows, especially in the face of ideas that the US was trending toward a default of its debt commitments. It should also be noted that the TARP costs were not as bad as feared and that the recent loss of the Democratic super majority in the Senate could bring about some spending restraint on the part of the federal government. With the US economy also showing signs of recovery, one could suggest that the Dollar is entering 2010 with significantly fewer burdens than it saw at the beginning of 2009.

Lastly, it would seem like a lot of luster has come off the Euro compared to last year, and that has prompted many traders to suggest that the Euro zone might be one of the last areas to have the capacity to raise interest rates. Therefore, we think traders have to give the Dollar the benefit of the doubt. With the prospect of the highest Dollar exchange rate since September 3, 2009, one could suggest that the technical outlook on the Dollar has turned positive.

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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: With the March Dollar Index closing below the 78.00 level yesterday and the Greenback tracking lower initially this morning it would appear as if interest in riskier instruments remains in place. We also think that the trade has temporarily lost respect for the US economy and in turn has temporarily lost its expectation that US rates are going to rise anytime soon. Therefore, the path of least resistance is pointing downward in the Dollar and it may continue to point lower until there is a distinctly strong US economic reading, or perhaps some surprise international flight to quality development. It is also likely that the overbought technical position of the Dollar is contributing to the weakness this morning, as the most recent COT report put the “combined” spec and fund Net Long position in US Dollar at new record level of 41,167 contracts. Therefore, the Dollar was clearly overbought technically and perhaps a bit overdone fundamentally around the recent highs and that could clear the way for a temporary slide. However, we suspect that the big down trend pattern in the Dollar has ended and that traders will eventually see a resilient Dollar trade ahead. In fact, in the early going today, the market clearly rejected the 77.39 level in a rather definitive fashion.

EURO: Like the Dollar, the Euro seems to be garnering a large portion of its action from technical balancing influences, instead of classic fundamental issues. Nonetheless, the Euro did see a “combined” spec and fund position that was net short 20,513 contracts as of early last week and therefore the sharp bounce off the 1.4250 level isn’t that surprising. In looking at the flow of euro zone economic data, there doesn’t appear to be a classic fundamental reason to consistently push up the Euro, but given ongoing economic euphoria in the equity markets, it is possible that the Euro will see some risk orientated buying. However, while the German jobless situation seemed to improve in December, we just don’t see the economic condition in the Euro zone as an attraction for capital. At least in the short term, the bulls look to have an edge, with a temporary move back above 1.45 possible, before the prowess of the US economy regains the upper hand later this week.

YEN: With a weaker Dollar seen over the last two trading sessions and the US Fed reiterating the need to leave interest rates down, the carry traders are emboldened again. However, we would see a return to levels above 109.50 as an opportunity to get short the Yen at a higher level, as recovery is ahead and eventually the carry trade will be unwound. With the magnitude of the November through December washout simply massive in size, the first retracement point of the break in the March Yen was all the way up at 111.35, but we doubt that the market will see that much of a sustained recovery ahead. Let the market bounce a little before adding or implementing fresh long term short side plays.

SWISS: In the March Swiss, a normal retracement of the November through December slide would seem to allow for a recovery bounce back to 97.30 this morning without even altering the downtrend pattern. The 50% retracement level for the Swiss is now seen up at 97.94 and a close above that level would get our attention and cause us to doubt our longer term bearish view toward the currency. However, as in other currencies, temporary weakness in the Dollar allows for some short covering in non Dollar currencies.

POUND: The Pound clearly lost its bullish momentum in the prior trading session and with the range down washout action this morning, it is clear that the fear of the UK debt load is once again behind the weakness in the Pound. A close below 1.60 today could project a further slide down to 1.5912 in the coming trading sessions. In short, the inability to hold up in the face of an early Dollar slide really highlights the Pound as one of the weakest currencies.

CANADIAN DOLLAR: While the Canadian remains poised just under its recent highs, we think that the Canadian needs a bit of a perfect macro economic storm just to continue to rise toward the 98.00 level. In other words, the Canadian needs a weaker Dollar, up beat macro economic sentiment and perhaps even noted ongoing gains in equity markets to catch what we would call a further recovery wave of buying. The path of least resistance looks to be pointing upward, but further gains might be difficult to engineer and the risk to longs has risen.

TODAY’S MARKET IDEAS: Temporary technical balancing in the Dollar provides a temporary rally window for the Yen, Euro and Swiss.

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DOLLAR: At least in the early action today, the Dollar appears to be in the midst of a further profit taking slide on the charts. Apparently the US housing news yesterday was a significant undermine of sentiment. However, the Dollar was already in the midst of a correction prior to the weaker than expected new home sales news was released. If the scheduled data was responsible for the wave of selling in the Dollar yesterday, then the market will be taking a long hard look at the claims and Durable goods data at 7:30 am this morning. However, the Senate vote on its Health Care reform bill is expected to start at 7:00 am eastern time and the outcome of that vote might be seen as an added negative to the Dollar. In other words, since the passage of the health bill became a nearer term reality, the Dollar seems to have come under pressure and therefore a passage of the bill looks to extend that bias today. While some might wonder if the Senate can get the bill passed today, one shouldn’t expect Congressman to work any overtime, as they already have guaranteed pensions and Cadillac health care in place. More downside in the Dollar today, with initial targeting seen at 77.74, unless the scheduled data disappoints and then the low today might be seen down at 77.60.

EURO: Technical short covering continues in the Euro as the fundamental shift doesn’t look to be definitive enough to justify the type of bounce seen in the Euro over the last two trading sessions. However, less concerns toward the situation in Greece seems to be contributing to the euro recover and that development alone could give the euro a sustained lift directly ahead. While a normal retracement of the December slide in the March Euro would allow a bounce to 145.67 without altering the down trend pattern, we doubt that the market is poised for that type of recovery. In fact, unless the US scheduled data is disappointing this morning it might be difficult for the March Euro to get above the next close-in resistance zone of 144.30 today.

YEN: Like the rest of the currency markets, the Yen is seeing a technical reversal of recent trends. It is possible that a series of BOJ comments overnight have fostered some fresh bargain hunting buying in the Yen, but if one looks deep into the BOJ Governor dialogue overnight, the Japanese economy continues to face serious slowing threats and that in turn could provide fundamental resistance to the March Yen directly ahead. However, a temporary recovery back above the 110 level, looks to be ahead, with a possible bounce to 110.56 possible in the coming two or three trading sessions. We continue to think that the yen might be the best currency sell for all of 2010.

SWISS: A normal retracement of the November through December washout in the March Swiss would seem to allow for a rise to 97.30 level. In fact, unless the US scheduled numbers are stronger than expected this morning, we see no reason to call for an end to the upward track on the charts. Traders should note that the March Swiss would regain its 100 day moving average at 96.90 today and that could give the bull camp a little added confidence.

POUND: While many commodities have waffled around their 50 day moving averages and the Swiss is attempting to regain its 100 day moving average, the March Pound managed to climb back above its 200 day moving average overnight. However, with the BOE recently fostering ideas that quantitative easing might be left in place and UK economic readings this week mostly disappointing, the trade in the Pound is lucky to have noted weakness in the Dollar, as buyers wouldn’t be interested in the Pound because of its fundamentals. A normal retracement of the November/December slide in the Pound, would allow for a bounce back to 1.6270 without actually derailing the downside pattern.

CANADIAN DOLLAR: We think the Canadian has clearly benefited from the recent reversal in the Dollar and to a degree it is also possible that the Canadian benefited from a recovery in oil and metals prices. At least in the near term, the losses in the Dollar should allow the Canadian to continue to win by default. Near term upside targeting is seen at 96.08.

TODAY’S MARKET IDEAS: Ongoing technical pressure to weigh on the Dollar again today and in turn that should serve to lift all Non-Dollar currencies.

Below is an excerpt from of  our latest Special Report. To read the full report, in addition to our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

In this update, we will concentrate on a few longer-term strategies for key markets for the coming year. All of these strategies are designed with limited risk and to the trader stay in the positions for an extended period, to be able to take advantage of longer-term nature of these moves. The presence of widespread global recovery expectations is going to facilitate even more fund interest in commodities into 2010. Periodic attempts to reign in inflation through the use of rising interest rates could cause the equity markets to chop around in 2010, as opposed to the very impressive uptrend pattern they exhibited in 2009. With rising rates also serving to make bonds and fixed income investments less desirable, commodities might become even more attractive in 2010. Therefore, traders should look to historically cheap commodities, to commodities with strong demand, and especially to markets that are small enough to be dramatically impacted by an influx of capital.

In looking forward, we see a major slide beginning in the US Bonds and the Yen, with the prospect of significant gains in orange juice, corn and cattle. We expect some rather significant price swings in these markets over the next 9 to 12 months. In general we are operating under the assumption that the global economy is set to recover, but we also think that US growth could end up being a little stronger than the anemic predictions that were being embraced by many markets as recently as the end of October.

In addition to the prospects of fundamental changes, we also are seeing some classic technical signals calling for big moves in the coming months. We are using strategies designed to

1. provide lower, defined costs,
2. offer leverage potential and
3. present an extended time horizon for the “big picture” developments to unfold.

Furthermore, by utilizing multiple units of the enclosed strategies, we hope to capitalize on partial moves by banking profits on a portion of each trade while holding the balance of the positions for an extended period. The idea here is that it would help us increase our resolve to hold out for an even bigger reward.

We admit that these strategies might have some flaws, the most prevalent being a lack of liquidity that could make them difficult to execute. Given their out-of-the-money nature, it could take significant moves for them to turn profitable, and without a significant move in the right direction it could be difficult to exit the trades. On the plus side, the trades generally have a defined risk, and in the event that our predictions are correct, the out-of-the-money options should become more liquid. Finally, one should not forget the potential benefit of holding a multiple positions in the face of favorable, big-picture market reactions.

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