Ralph Shell's  Instablog

Our preference yesterday was to scalp the short side if the market failed to hold above 1.4150. This was the right approach as we are currently around 1.3965.  Further weakness from here will probably elicit some stops.  Overnight the Japanese finance minister said they had confidence in the safety of Treasuries and would continue their purchases. But since they are the second largest owner of US Gov securities, it sounds like they are talking their position.  The WSJ Says that the dollar will be helped because the Fed is going to refrain from more quantitative easing.   Well maybe.  Spendaholics generally have a few slips, and the Washington group is truly addicted.  Equities in Europe traded lower, commodities including oil,are relaxing, and US consumer sentiment has improved, so maybe the signals are properly aligned for further dollar strength.  Try the short side on a little rally back to 1.4020.  The pair failed to mount a robust assault on last week's high, so a further retracement is possible toward the 1.37 level.

After another assault of the high the pair has since retreated to 1.6390, or a couple hundred under the sessions high.  As the Brown Labour government continues to muddle through, the Brits optimism that improving conditions will continue is helping consumer sentiment.  The the GBP versus the EUR has moved to the highest level since Dec 08, but the GBP versus the USD may have printed a double top.  We had been recommending trading from the long side but this pair's failure to move to new high ground makes us waryof this approach.  Perhaps it is best to take a pass for today and see what monday brings.

This pair is currently trading at 98.25, 100 pips up from the low just yesterday, and for the time being stalled in a congested area just above 98.  Though I do not like to initiate new positions on a Friday, I want to try to scalp the long side and see if we can take out some stops above .98.50.  The Japanese are exporters and have a vested interest in a weaker yen since this benefits exports. 

As we anticipated there was adequate support in the 1.06/07 level to contain the slide in this market. Some dollar affection seems to have given the USD a boost versus the Swissy carried the market a little above 1.0840.  What is the path of least resistance here?  We have found some pretty good support under us.  Is there a chance we again trade above 1.0850 touching off stops prior to the weekend?  The dollar bears may be running out of patience and give us some buying.

With crude lower and North American equities mixed at best, the CAD versus the dollar, has lost ground and is currently trading at 1.1190.  So much for an uninterrupted move back toward parity. It looks like a few kind words for the dollar has been beneficial this morning.  The danger for the CAD bulls here is that we are close to breaking out of the bear channel, and going through a major down trend line. My bias is for a stronger CAD eventually but a short covering rally, after the long downtrend could be unpleasant.  Let's see what next week brings.

Modest improvement in Australian economic conditions has helped the AUD back to previous highs.  It remains to be seen if this remains a double top, or we can break through into higher ground.  The commodity currency story has been told many times, but commodities prices do not always cooperate with the forecasters.   The trend is up but the Australian story is no longer fresh.

 NZ retail sales showed a .05 increase in retail sales due to an increase of auto sales, and perhaps gave the Kiwi a little boost.  So far this market has failed to recover back to the .6590 high made on June 2. As previously mentioned the commodity currency story is not new,  The longer trend is still up but the failure to take out the early June high might be a warning that this bull story is a little long in the tooth.