July 26, 2011

US Dollar Tumbles as Crude Oil hunts for 100.00 and Gold looking for clues

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The James’ Report: Professional Resources for Professional Traders

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– Focus on US debt ceiling negotiations; Dealers feel that the AA rating will become the new normal

– USD facing a possible crisis of confidence

– India Central Bank raises key rates more aggressively

– Auctions from Europe were mixed in Spain and Italy; Peripheral yields rise

– UK Q2 GDP stays in positive territory

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Talking Heads Overnight: (what they think they know)

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– The Indian Central Bank (RBI) commented after its rate decision that its policy stance going forward would depend on evolving inflation trajectory with direction dependent on sustained inflation slowing. The RBI noted it might need stronger actions if no demand/supply response as demand-side inflationary pressures continued to prevail. Inflation continued to be a dominant macroeconomic concern and it needed to preserve anti-inflationary stance. Recent headline inflation figures were likely to be revised upward. The central bank’s aim was to manage risk of growth significantly falling below trend and noted there were no sign of sharp or broad-based slowdown in economic growth

– Greece Dep Fin Min commented that the debt swap to begin in August

– ECB’s Noyer reiterated ECB was in a position of” strong vigilance” but did not pre-commit on policy decision. Must contain effects from higher commodity prices from leading towards permanent price rises via second-round effects

– China State Administration of Foreign Exchange (SAFE) commented that spending currency reserves domestically would cause inflation and was looking for ways to use FX reserves to benefit the public. The regulator noted that Chinese companies were unwilling to keep foreign currency due to CNY currency appreciation expectations

– China Sovereign Wealth Fund CIC: 2010 overseas investment return at 11.7% vs. 11.7% prior year (2009)

– BoE Weale (hawk) stated that there was real danger that UK could fall back into recession and would be naive to say there was no risk of a double-dip recession. An interest rate increase of 25bps would imply inflation concerns and would have limited affect on demand

– Philippines Finance Sec commented that the failure of the US to reach a debt deal was causing a loss of confidence in the USD currency and the situation could accelerate the search for an alternate reserve currency. With no credible alternative to the USD in the short run would send gold and oil prices higher and in case of default they would go “through the roof”

– India Fin Min Mukherjee commented that he expected FY12 GDP growth to be in line with year-ago level. Inflation has softened in recent months but needs to be brought down to an acceptable level

– UK Business Sec Cable: Plan ‘B’ not required; govt needs to stay with the deficit reduction plans

– UK Chancellor Osborne: Positive news that the UK economy is growing and creating jobs; abandoning fiscal plans now would only risk jobs and growth

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Currencies:

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– The USD’s tone was looking very weak against the current outlook for the US debt negotiations as the greenback lost ground during the Asian session following comments from both US President Obama and House Speaker Boehner comments on the current state of negotiations ahead of the August 2nd ‘line in the sand’. The FX markets did not bode well to Obama’s comment that the failure to raise the debt ceiling would result in a default. The EUR/USD tested above the 1.4520 level during the initial part of the European morning before settling down. Overall the debt concerns in not an isolated US problems with Europe still struggling to prevent contagion. The peripheral yield in both Italy and Spain steadily rose from the onset of trading today with the Spanish 10-year yield climbing back above 6.0%

– The USD/CHF briefly tested below the alleged option barrier protection and psychological 0.8000 area for fresh all-time lows

– The GBP received an additional impetus in the session after posting in-line GDP numbers after whisper numbers went as far as negative territory. The GBP/USD surged over 70 pips to touch above the 1.6410 area in the aftermath of the data.

– The rhetoric on the JPY strength continued among Japanese officials as the USD/JPY continued to hit fresh post G7 intervention lows. The pair remained locked around the 78 handle during the session.

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In The Papers:

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– Ireland’s banking sector has yet to fully emerge from the financial crisis and that in particular the first half loss at Allied Irish Banks widened to €2.2 billion from the prior year loss of €1.7 billion.

– According to the Independent, the pool of investors for Spanish and Italian debt is declining. Pension funds already cannot purchase bonds from the governments of Spain and Italy because they are only allowed to buy the safest ‘AAA’ rated debt. There has been reluctance by some traditional lenders, such as US money market funds, to purchase certain types of European debt.

– The Telegraph commented on the continued concerns in Europe following the Greek deal. According to one trader, concerns about whether the size of the EFSF will be raised have led to renewed contagion concerns related to Spain and Italy. There were also some concerns about a report which said that politicians in Slovakia might try to block the new rescue agreement for Greece. Some see that European bond yields could continue to rise until more details of the Greek plan are provided.

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Use this to make our cash today… (what day traders need to know today)

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Today’s Economic News:

Looking ahead at the news today, we begin with 900am Case-Schiller Home Price Index, which will affect the US DOllar, which will in turn push gold futures around. We then go through our 930am US Market Open, with more news coming at 1000am this morning New Home Sales, Richmond Fed Manufacturing Index, and Consumer Confidence.

As you can imagine, there will be a lot going on around 10am this morning so we will avoid trying to predict, and we will react to the news by reading tape, watching the speed of the market, and try to get a feeling for market personality to help us make educated trading decisions after the news.

After our 10am news we expect a slowdown into 1030am Dead-Zone and then looking for volume to pick up after 11am as traders finish off the morning.

We would hope for a Golden Lunch, however, summertime trading tends to produce less volume late in the morning/early afternoon so we will wait for the European Close at 1130am and see where we are at that point.

We will be doing a special webinar today @ 1130am est once the markets finish giving us opportunities to trade.

Today News for Day Traders

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Looking at the Charts:

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The US Dollar Index is much weaker this morning after concerns about this debt ceiling continue to weigh on traders and investors. The US Dollar broke the minor support from the wedge lows on Monday and this morning is testing the major support lows of 73.500 the lows of the price channel on the 89range chart. this is major support so we expect to see price either stall here and trade sideways, or bounce and rise back up. Let’s use a faster timeframe to get a better ‘feel’ for the market’s personality, such as the 13range chart.

Our 13range chart on the dollar shows a very important aspect to be aware of. You can easily see the downtrend on the US Dollar, however you can also see the personality traits of sideways markets and then new lows again, followed by more sideways chop, then new lows. It will be very easy to avoid trading when the US dollar is chopping sideways, and then lets keep a close eye on new lows (or new highs) for the times when it will be in our best interests to enter a trade.

A trick that I use…add a price alert indicator to the lows of the range at 73.695 and 73.890 and when the ‘alert’ goes off you know to make sure you are looking for a trade. We use the US Dollar Index correlation when using the dollar for day trading.

US Dollar Index 89Range

US Dollar Index 13Range

Crude Oil Futures are in a bullish price channel, trying to push through resistance levels coming from the big round number of 100.00 and the previous trend lines in green and yellow that make up old price wedges.

We can see the major price wedge in yellow trend lines is still in play as overhead resistance around 100.95, as well as we can see the old price wedge highs in green trend line is still causing this price to be sloppy around this area.

Furthermore we can see the no trade zone around 100.15 down to 99.85 is the high end of today’s trading range, so we need to beware that area will also be sloppy and we have major support at the lows of the old price wedge.

The best way to trade this market is to remember to stay selective with your trades around this area of 100.00, buying at support 98.82, 98.50, 97.21 if price falls to the lows, and avoid the No Trade Zone if price rises to the highs of the range. I will consider buying pullbacks above the 100.15 No trade zone, however, I will need to see how the market personality looks at that time. It will always be a concern for us trading around the 100.00 and its in our best interests to sit on the sidelines and wait for better opportunities to trade, so keep that in mind.

Bullish channel reminds us to keep looking for buying opportunities at support levels, and a falling dollar certainly helps that as well.

Crude Oil Futures 89Range

Gold Futures continue to look for clues today, making new highs earlier this week and then falling off those highs creating a new sideways range for us to consider. We can see a new bullish price channel in red trend lines, along with two distinct sideways ranges. The bullish trend tells me the high percentage trades will be buying at support as price drops this morning from these highs, and if we go back to all-time highs we will have to sit on hands because buying the all-time highs will be a very sloppy process, we would rather wait and sell the highs.

Best way to trade this morning’s market on gold is to trade the sideways range, buying the lows, and selling the highs. If we make new lows look to sell them with retracements, however, remember the best trades will likely be buying support levels such as 1607.3, 85.5, 83.3, 76.2 as price drops.