USD Strategy Vs. C.Confidence

Written by Research / Trade Team | 23 February 2010

US Stocks Taking a beating

The Consumer confidence have taken a surprisingly sharp fall for the month of February with rising unemployment. The decline ends three consecutive months of improvement and raises more negative sentiments about the economic recovery.

The Conference Board report on Consumer Confidence Index fell almost 11 points to 46 in February, down from a revised 56.5 in January. Analysts and traders were expecting only a slight decrease to 55 and were reluctant to take any further additional positions prior to the reports for the week ending of February. The increasing pessimism is a big blow to hopes that consumer spending will power an economic recovery. A reading above 90 means the economy is on solid grounds. Above 100 signals strong growth.

The news sent stocks lower, overshadowing retailer reports that showed stronger holiday profits. The Dow Jones industrial average falling 74.29 points to 10,309.09.The overall economy expanded at an annual rate of 5.7 percent in the fourth quarter, but only about one-fourth of that growth came from consumers. That marked the second quarterly increase in a row after four quarter of decreases. But continued high unemployment could lead consumers to further cut their spending and that could lead to a slower economic growth.

As a barrage of negative sentiments spread over the market with the EUR/USD and the GBP/USD made some wide and erratic swings that prompted some earlier buyers of the majors to pull out whenihey declined further inspite of the negative report for the US Dollar. The overall reaction affected the USD/JPY as it drop to 90.02 low for the day while the USD/CHF went to the opposite direction as we previously stated at the 1.0841 as of this writing. At the same time the EUR/GBP did made a slight correction expectedly back to the 0.8750 levels which happens to be the average price of the prices for the last three and half weeks. And this also influenced the Aussie Dollar to continue to move lower which the other traders now are particularly more confused as to why such reports are affecting opposite price reactions in the market place. But the real reson for such peculiar actions are considered a buyers trap which will be explained as we go along this report.

With this said, the EUR/GBP still hold its true value against and wild fluctuation from the USD which may have been absorb by the market from its recent earlier decline. With the EUR/GBP's corrective mode and taking certain pre-calculated trades around these areas of support but not lower than the 0.8655 levels which may well be a tolerance level from current prices. As the EUR/JPY indeed made its downturn from its technical configuration which had showed from the previous days as indicated in this chart of the day.

However, the concern there is whether one maybe able to tolerate such maximum levels. These are all true only if the amount of the account size is appropriate to take this position. the strategy is only to take the long position on the way back up and not on the way down. So proper timing and patience should be the approach to this trade.

As this particular case the major players move is to be able to make smaller speculative positions to capitulate as wild market swings are not for limited tolerance accounts in the retail business side of the Foreign Exchange market. And a USD buyers trap is actually in the market place which not a lot of traders would have noticed by now. And this has been our sentiments from several market view as to why we do encourage to hedging strategies specially when it cometowards the end of the month's adjustments again.

As long as the USDX does not go below the 79.80 - 80.20 bp. then it would still be a corrective move for the dollar index even if the rest of the economic reports this week would still be negative for the USD.