Play The Trend As Economic Speakers Move The Markets

Play The Trend As Economic Speakers Move The Markets


Retail Sales number came out higher then expected at 1.4% as opposed to a forecasted 1.00%. Coupled with Bernanke pointing towards an “extended” period of low borrowing costs and “significant economic challenges” still on the horizon, the dollar touched its lowest value since August 2008. “Of course” traders took this wheelbarrow of good news the only way they know how: weak dollar equals strong everything else, and pushed the S&P to the highest we have traded all year.


As the guest writer today, I don’t want to upset anyone, but personally I think that like most High school relationships, this one cannot and will not last. At some point reality will slap investors across the face. People will realize that you cannot build a 50 story building where the first 5 floors are built out of hope and good intentions.

Today’s data is expected to be relatively light. PPI, TIC Net Long Term Transactions, and the NAHB Housing Market Index are all forecasted to come out higher then last month. The market may be biding its time until Wednesday when Core CPI and Crude Oil inventories are expected to come out.

While yesterday we saw the dollar trade lower, at the end of the day we managed to close near its open suggesting that investors are unsure of what will happen next. With an increasing amount of risk appetite sending equities and commodities higher we have to acknowledge that while not all the pieces of the puzzle fit into place, the picture is still the same. Simply put this means that the trend is your friend, and if you live by this one rule of logic, you will have made, and will continue to make money over the next few months.

EUR

Not much in the way of data coming out of Europe today. The only item on the agenda is the Trade balance, which is expected to come out weaker. Yesterday’s CPI came out as expected and the European Currency was able to keep much of its gains against the greenback closing just below 1.50. Analysts are suggesting that we could see this currency trading at 1.5285 in the next little while. I tend to agree with that line of thinking and maintain that as long as the dollar continues to weaken, it will take a significant fumble by the ECB before we begin to see any Euro weakness. Tomorrow Trichet will share his thoughts on the economic situation adding to the pot and inevitably there will be market volatility surrounding his comments.

GBP

Fueled by a weaker American dollar and bullish comments by Bank of England Policy Maker Andrew Sentance, the Pound traded higher yesterday. Sentance suggested that inflation is a growing danger and must be dealt with before it becomes a significant factor in the UK economy. We are still waiting to see what the official BOE Inflation Letter has to say regarding his thoughts. It’s more than likely that both Sentance’s stance and the BOE’s are in line, and that could be the necessary catalyst to push the Pound towards the higher end of its trading channel. Adding to the mix tomorrow the MPC Meeting Minutes will be made public and we will see how the BOE attempts to “dictate” trading over the next few weeks.

JPY

The Yen continues to gain strength against the Dollar as risk appetite remains strong. Expected dollar weakness today will only push this currency pair lower, and Gold higher. As Gold breaks records like an Olympic athlete on Steroids it would be wise to continue to play the up trend. There has not been significant weakness in this market since the summer, and none is expected over the next few weeks. Be cautious as it seems everybody is jumping on the Bandwagon, and that usually signals the end of a trend. However, I would not play this trade on the short side as long as we continue to show such strength.