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Forex Profit Alert Daily Briefing
*** WATCHING: EVERYTHING! Be ready for a new trade soon...
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Dear Forex Profit Alert Subscriber
The dollar gained across the board yesterday afternoon after the release of a better than expected ISM manufacturing Index for December.
Although the ‘prices paid’ element to this figure was much lower than expected, this did nothing to distract the surging US dollar (USD). In addition, the earlier ADP employment number was also way below expectations and - if at all accurate - should point to a lower non-farm payroll number for Friday.
The problem, of course, with the ADP figure is that it is extremely unreliable. This probably explains why the market and the USD paid no attention to it yesterday.
The pound sterling (GBP) was the hardest hit of all the majors yesterday afternoon, as systematic stop loss selling triggered a larger than expected move. Unwinding of long sterling/yen (GBP/JPY) trades at the same time as USD/JPY moved higher meant that GBP/USD was forced sharply lower. And it’s carrying on this morning.
I am happy to see GBP/JPY come lower from a peak of near 235 as it was technically overdone and as you know I am looking at lower levels in the near term to enter a long GBP/JPY trade.
Last night’s release of the last FOMC minutes saw nothing outside of what was expected but also was not dovish enough to force any USD selling later in the US session.
Gold touched the $645 resistance line yesterday but, crucially, did not close above it. This was a classic case of why it is so important to stick to our discipline.
The failure of gold to break above this resistance, coupled with a sudden surge in the dollar, forced a nasty and extremely rapid sell-off as the price tumbled some $20 by the close of the session. Plenty of traders will have been caught on the wrong side of this move.
As I said yesterday morning, the price of gold looks still to be very closely linked to that of the dollar and yesterday’s movement merely served to highlight that link.
Overall, judging by yesterday’s movement, the market is still very thin and there is a real dearth of liquidity. We should expect more of the same before the week is out.
Again, let’s be patient here and not risk getting on the wrong side of the move. There is no hurry here – we have plenty of time to get the right trades on.
Data Today
** UK Money Supply and Lending for November (including Mortgage Approvals and lending on dwellings and net consumer credit) at 9.30am. PMI Services Survey and Official Reserves for December at 9.30am. GFK Consumer Confidence Survey for December at 10.30am
**Euro Zone PMI Services and Composite Surveys for December at 9.00am. CPI Estimate for December at 10.00am
** US Challenger Job Cuts for December at 12.30pm. Initial Jobless Claims at 1.30pm. Factory Orders for November and December ISM Non-Manufacturing Survey at 3pm. Pending Home sales for November at 3pm.
As I said in yesterday’s report, I want to talk a little about the commodity currencies. These are the currencies of the countries that are large commodity producers – Canadian dollar (CAD), Australian dollar (AUD), New Zealand dollar (NZD) and South African rand (ZAR).
With the exception of CAD, all of these enjoyed a good close to 2006. AUD, NZD and ZAR all closed positively on the year.
Looking to 2007 it would appear that certainly both AUD and NZD will continue to attract investment flows out of Japan, still hungry for a higher yield, as the ‘carry trade’ continues to abound. The tone for the first quarter could well be set by the middle of this month if there is reason for that to unwind.
I will be looking in particular at NZD/JPY as a potential trade going forward. It has had a good run recently and is due for some profit taking. As usual I will be looking for a correction to get into this one.
Meantime, CAD is still suffering from long-term investment outflows as a result of the drastic changes in tax policy made last year by the Canadian Government towards income trusts. Foreign investment is looking for a better home. CAD is the weakest of all G10 currencies and for the time being looks set to continue in that vein.
As for today, the USD has continued to strengthen this morning against the majors and I am assessing opportunities for new trades here. Longer-term, I would expect a renewed weakening of the dollar... but there could well be opportunities to buy it for some shorter- term gains in the meantime.
Like I said before, we need to be very careful in these thin markets. I’ll be in touch when I see the right trade. For now, let’s keep our trading capital safe. We may need to wait until Friday’s key data is out of the way before we make our move...
Keep your mobile switched on - I'll text you if we're trading...
Speak soon,
Tom TragettForex Profit Alert
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