Profit Mongers @ 10:56 PM, Wednesday October 13 2010
Hey folks,
Until this evening's Asian session, this week had been characterized by rangebound trading largely due to central bank commentary. Specifically, the Fed's Lacker (a noted hawk) gave some commentary on the potentail QE2 and gave further credibility to the idea that it's well in the works. Couple that with some USD weakening commentary out of Singapore's central bank, and we got the fuel for the big USD weakening breakout that's underway... here's my take on it:
We've seen this before... the long term charts are not making sense... the move is completely sentiment driven and almost emotional. This is prototypical "buy the rumor, sell the news" type price action. Chances are the USD will remain weak as this anticipation continues to build about this impending QE2; however, once the real QE2 is here and starts actually flooding USD into the system, that's when this ride will be over and painfully reverse. It's the same thing we saw with QE1. It's not about finding the spot on the chart, or the area of resistance for EUR/USD to turn lower... It's about timing the swing in sentiment as the last of the dumb money pours in short USD once Quantitative Easing actually commences.
For now, I'd say continue using momentum following and retracement strategies to capitalize on the USD weakness as we may have weeks left on the current trend (already 4 weeks strong with little to no retracement). There will be a retracement eventually, but any dips are likely to be well bid at key retracement levels and at least lead to consolidation as the market awaits the inevitable.
In news Wednesday, we saw UK Claimant Count Change come out too close to expected for a trade, while NZ Retail Sales came in low enough to get the NZD down for awhile, but not low enough to safely get in a trade. In news Thursday:
0830 US Initial Jobless Claims (445K expected) - While this is a small weekly report, this week it's coming out alongside PPI data, so it may get a bit of extra attention.
If IJC comes out at 470K or higher, USD/JPY should sell off 30 pips.
If IJC comes out at 420K or lower, USD/JPY should rally 30 pips.
For PPI, the more important number is PPI Ex Food & Energy (Core) expected at 0.1% m/m and 1.5% y/y. If it comes out high by 0.3% that should help a USD/JPY long, and if it comes in low by 0.3%, that should help a USD/JPY short.
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