Reply #40: dollar watch

[UpInArms]

http://quotes.ino.com/chart/?s=NYBOT_DX&v=i

Last trade 86.223 Change +0.513 (+0.66%)

US Dollar, Japanese Yen Falter as Citigroup Rescue Boosts Demand for Carry Trades

http://www.dailyfx.com/story/dailyfx_reports/daily_fundamentals/US_Dollar__Japanese_Yen_Falter_1227562553253.html

The US dollar and Japanese yen – the biggest beneficiaries of flight-to-quality and deleveraging – both tumbled on news that the Treasury, Federal Reserve and Federal Deposit Insurance Corp. pledged up to $306 billion to shield Citigroup from losses related to toxic assets, though the firm must absorb the first $37 billion to $40 billion in losses, while also agreeing to inject an additional $20 billion in capital. The news suggests that the Treasury dropped provisions to buy troubled assets under the Troubled Asset Relief Program (TARP) on November 12 because it would simply be too expensive given the budget constraints approved by Congress. It will be interesting to see if other banks end up requiring similar aid, and if the US government will comply.

Looking ahead to Tuesday, in case the first round of US GDP readings for the third quarter weren’t bad enough for you, the second reading is anticipated to be revised even lower at 8:30 ET. Indeed, annualized GDP is forecasted to be altered to -0.5 percent from -0.3 percent, while personal consumption is expected to be corrected to -3.2 percent from -3.1 percent. However, it will likely take a surprisingly low result to illicit any sort of reaction from the markets, as traders are already well aware that economic conditions in the US remain dismal. Later in the morning at 10:00 ET, the Conference Board’s consumer confidence index is forecasted to hold near the record low of 38.0 reached just last month, though given the gloomy outlook for the economy, there may be downside risks. The key here will be to gauge the impact of the news on risk trends, as disappointing data could trigger flight-to-quality and thus, US dollar and Japanese yen buying. On the flip side, readings in line with expectations shouldn’t have a huge impact and could allow the surge in carry trades to continue.

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EUR/USD: Trading U.S. Durable Goods Orders

http://www.dailyfx.com/story/trading_reports/trading_news_reports/EUR_USD__Trading_U_S__Durable_Goods_1227615557041.html

The growth outlook for the U.S. is expected to weaken further as economists forecast durable goods orders to fall 3.0% in October. Tightening credit conditions paired with falling home prices have certainly dragged on the private-sector as personal spending dropped 3.1% in the third quarter for the first time since 1991.



Trading the News: US Durable Goods Orders

What’s Expected
Time of release: 11/26/2008 13:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: -3.0%
Previous: 0.9%



<snip>

The growth outlook for the U.S. is expected to weaken further as economists forecast durable goods orders to fall 3.0% in October. Tightening credit conditions paired with falling home prices have certainly dragged on the private-sector as personal spending dropped 3.1% in the third quarter for the first time since 1991. In addition, retail spending slipped to a record low of -2.8% in October, followed by a 0.9% decline in chain-store sales, and conditions may only get worse as the unemployment rate reached a 14 year high of 6.5% during the same period. Fading employment opportunities has clearly taken a toll on demands as factory orders fell another 2.5% following a 4.3% decline in August, while domestic vehicle sales plunged to 7.9M from 9.6M in September. Deteriorating fundamentals have certainly stoked fears that the world’s largest economy could face a deep and prolonged recession which could last well into the next year, and may lead policymakers to increase their efforts over the coming months in order to stave off further downturns in the economy. President-elect Barack Obama promised to deliver fiscal stimulus package during a speech yesterday as he expects conditions to get worse, and noted that it will be imperative to restore confidence in the financial market. Mr. Obama went onto say that the unprecedented downturn in the financial market requires ‘extraordinary policy responses,’ which suggests that he will work closely with future Treasury Secretary Timothy Geithner to carry out these fiscal objectives. Meanwhile, Fed Fund Futures are showing that market participants are increasing their bets for a 50bp rate cut as they price-in an 88% chance for the FOMC to lower the benchmark interest rate to 0.50% however, a Bloomberg News survey shows a median forecast for a 25bp cut to 0.75%, which suggests that the U.S. dollar may face increased selling pressures over the coming months as the Fed continues to lower borrowing costs. Nevertheless, as risk trends continues to drive price action in the currency market, the greenback may continue to benefit from its safe haven status as investors curb their appetite for risk.

With the given event risk at hand, we would need to see a considerable improvement from the forecast to go long on the dollar. Therefore, an increase of at least 0.1% or more would certainly set the stage for a short EURUSD trade. Following the release, we will look for a red, five-minute candle to confirm an entry on two lots of the euro-dollar. Our initial stop will be placed at the nearby swing high (or reasonable distance), and this level of risk will determine the target for the first lot. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.

On the other hand, fading employment opportunities paired with the lack of stability in the credit market is likely to curb demands, and a fall in durable goods would certainly stoke increased selling pressures for the greenback. As a result, a decline of 3.0% or greater in orders would favor a bearish dollar trade (long EURUSD), and we will follow the same strategy as the bullish dollar trade listed above, just in reverse.
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