Daily Commentary for September 18th, 2006

Dollar Strength Is A Welcome Development & Pope Benedict’s Mistake

Good Sunday Evening, Monday Morning,

We hope everyone had a great weekend, and is well rested after a pretty exciting trading day on Friday. For the first time in a while, some of the major currency pairs were able to break out of a seemingly everlasting period of consolidation. Traders believe the strength was due to the fact that many believe that the slowdown in the economy, namely the housing sector, won’t be as harsh as originally thought.

After Pope Benedict XVI finished reciting comments last Tuesday basically saying that the Prophet Muhammad, the founder of Islam, was “evil and inhuman,” he probably wanted to fire his speech writers. The backlash from Muslims prompted the Pope to retract his statements saying that he was merely reciting passages from a Medieval text and those words did not represent his thoughts or beliefs. Have a great week!

Technical Indicators

Eur/Usd
The Euro has approached levels not seen since late July as we’re currently seeing a low print of .2630. As usual when a pair is in somewhat of a freefall similar to what the Eur/Usd is right now, we’re very hesitant to put out a support, as it usually is like catching falling knives. We like to see some sort of consolidation occur before any suggestions. The Zew report later this week could further hurt the Euro if a weaker than expected number is reported. Our strategies are currently exhibiting a net Euro short bias.

Usd/Jpy
The G7 meeting over the weekend was essentially a non event for the Japanese Yen as basically the only mention was the fact that Japan has eliminated the zero-interest rate policy and the “recovery is now broad based.” Traders most likely look for the economic data to confirm or refute this before sticking their necks out on any Yen longs, as the trend is still Dollar bullish. The 117.50-118 range remains, as Dollar longs are getting frustrated by the inability to crack through 118 for any extended period of time.

Usd/Chf
On Thursday we noted the movement after the SNB decision on interest rates was most likely Dollar bullish, and indeed it turned out that way. Reviewing our notes we accidentally noted that .2450 was the resistance, obviously we misspoke, and meant to say support. Some of our readers emailed us about this for clarification, so we apologize. The reason the Franc was so weak on Friday was that comments made by the Swiss National Bank lend to the notion that a 50 basis point increase later this year is not quite a sure thing as once expected. Let’s use Friday’s high of .2620 as the new resistance, and .2550 as support.

What Our Strategies Are Telling Us as of 9/17, 6:00 PM ET:
We have 10 strategies that we will report to our clients on a daily basis in regards to their respective dollar bias. Our intent is not to provide investment advice to those who read this following section. We are merely reporting the biases that our strategies are exhibiting.

Eur/Usd
$ Long Bias
Usd/Jpy
$ Long Bias
Usd/Chf
$ Long Bias

The Dollar strength on Friday was enough to trigger some positions in a majority of our Eur/Usd based strategies. As shown above, our strategies are currently exhibiting a rather decidedly net Dollar long bias, so it will be interesting to see if the Dollar rally continues. Participation has increased quite a bit, as about 70% of our strategies are holding a long or short position.

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T2
www.tsquaredtrading.com