Weekly Outlook for Forex from Odom & Frey

O&F FOREX News & ViewsBy: Head Trader, Derek Frey

August 18, 2008

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General Market Comments:

We continue to see higher than “normal” levels of volatility. (…)

Weekly Outlook for Forex from Odom & Frey

This week we have another round of data points coming out.  We have GDP on Thursday and then the all important NFP report on Friday.  We expect the Dollar to continue to stage a bounce and we are overall buyers of dips in the Dollar against the majors.  Now that oil has backed off of its highs the central bankers have the “excuse” they need to justify sitting on their hands.  This lack of action on the part of the Central Banks leaves the currencies as a whole to drift in a very choppy fashion.  This is a true “traders market” and one that is likely to last for the balance of the year as we see little on the horizon that would force the hand of one of these Central Banks.�
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EUR/USD:
Much like last week, we are again selling rallies in this pair.  There is little to no reason to expect this pair to follow through above 1.60 in the near term so we continue to be sellers of strength.  Again we are not predicting overall direction, what we are predicting is a lack of direction or range bound market that we have already seen since the beginning of the second quarter, continue to maintain itself for the foreseeable future and since we are still closer to the top of the range than the bottom we remain short biased.�
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GBP/USD:
This pair also remains the same as last week.  We are sellers of rallies especially anytime this pair trades above 2.00.  We are still targeting a move to at least 1.9750 and possibly lower before this current “trend” reverses.  This market is also range bound much like its cousin the Euro.  And here to the BOE is unlikely to do anything for some time.  Central Bankers as a whole are acting like a deer in the headlights, that is to say that they are paralyzed by fear and frankly we think rightly so. (…)

Weekly Outlook for Commodities from Odom & Frey

Commodities continue to be mixed though we are nearing a point in the summer where we are expecting a bit of bounce to come across most of the commodities markets.  In particular we are looking for both Grains and Energy sectors to stage a brief rally in the weeks ahead.  We are not calling for a resumption of the uptrend, but a bounce back up to retest some of the recent highs is in order.  We still expect the Dollar to continue to stabilize.�
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Crude Oil:
Crude oil has managed to stay down for a week giving the bulls in the stock markets a reason to breathe a sigh of relief.  We are in no way out of the woods yet as far as the price of oil is concerned but this pause, if that is all it is, is welcome to say the least.  We are buyers of this dip for the near term as we still feel there is more that can cause the price to rise than fall on the horizon.�
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Natural Gas:
Our first round of buying was stopped out but we are still biased to the long side this week as we expect at the very least a dead cat bounce to bring prices back above 10.�
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S&P500:
Since bouncing off of the lows, the market has struggled to maintain that upside bias.  We are confident that in the sort term it will in fact follow through.  We are therefore buying major dips this week and holding those trades into next week and beyond.  Again we are not expecting anything other than a short term sucker rally so do not get sucked into this unless you plan to exit quickly and soon.�
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U.S. (…)

Weekly Outlook for Forex from Odom & Frey

This week we are looking at consolidating the gains made last week.  The S&P 500 staged an impressive bounce off of support levels and needs to consolidate those gains if it is ultimately to follow through.  We expect it will follow through even in the face of still relatively high crude oil prices.  I mention these events because they will be the footing for the Dollar to stage and hold its bounce.  We expect to see continued Dollar strength in the near term.  Overall we are looking to buy Dollars on dips against the majors.�
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EUR/USD:
We did see a brief head fake above 1.60 last week, but since then we have seen this pair fall back into its well established range.  We expect this range to be maintained for at least the better part of the summer.  We are still selling rallies in this pair targeting a move back to 1.5650 or lower before the month is out.�
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GBP/USD:
This pair also staged a brief but violent head fake last week, but it too is falling back into its range.  We are also selling rallies here while targeting 1.9750 before the month is out.�
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USD/CHF:
This pair put in a solid bottom below parity last week and has since staged an impressive rally.  We do expect upside follow through in the medium term, but in the short term we could see this pair consolidate for at least part of the week.�
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USD/JPY:
This pair had a nice shake out last week and is now poised to really break out and rally.  If this pair can break out above 108, we could see a sustained rally to 112-114.  Much like the Swissy, we are in the very near term expecting a consolidation before the above rally takes off.  Buy dips and hold.�
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AUD/USD:
This pair is building a bull flag.  We are still looking to fade rallies as we expect this market to consolidate if not pullback in the face of a stabilizing US Dollar as well as consolidation in commodities as a whole.�
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USD/CAD:
This pair remains stuck to parity as the BOC has proven to be the best manager of their currency out of all major central banks.  The daily charts clearly show that they have instituted a 5 cent band around parity and been able to maintain it so far this year.  We expect that whatever they are doing will continue to work.  Remember, central banks HATE trends.  They have a mandate against them.  They, above all else, want and need price stability.  Price stability does not come from trends but rather from choppy side ways markets like we have seen in this pair all year.  Hats off to the BOC as once again Canada proves to be a leader in global economics. �

Weekly Outlook for Commodities from Odom & Frey

Commodities continue to consolidate as we have mentioned in recent issues.  We are now seeing even the leader, crude oil, back off from its highs.  While we do not in anyway think the overall bull is dead we do suspect he is tired and looking for a mid summer nap.  Freddie and Fannie seem to have weathered the storm that we saw last week and confidence in the overall markets seems to be coming back.  Overall we are looking for more firming in the Dollar with continued consolidation across commodities as a whole.�
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Crude Oil:
Oil did have the “break” we warned about.  It does look like it was enough to “shake out” the weak hands.  We are now buyers of dips again and are looking for a retest of the old highs and the probability of pushing through 150 remains higher than the probability of pushing back below 100.  Between tensions in the Middle East and Africa, and continued increases in overall demand, there are more underlying reasons for the price to rise than fall. (…)

Weekly Outlook for Forex from Odom & Frey

This week all eyes are focused on The BOE.  Will they follow the lead of the ECB or continue to be the lapdog of the FOMC?  We expect the ladder, while wishing for the former as we feel that is the right thing to do.  We have a number of other important reports coming out both this week and next.  The overall tide against the Dollar continues to put in a bottom and we do feel that continuing to buy dollars on bounces is the overall best place to be.  We cannot yet say that the absolute low for the Dollar is in but we suspect that if it is not already in that it is close. (…)

Weekly Outlook for Commodities from Odom & Frey

This week we are seeing signs that some of the froth in commodities may finally be coming out.  While we remain long term bulls of the overall commodity sector, we feel at this time that many of the commodities are overbought or in the case of energy, in a bubble.  That is not to say that some markets, crude oil in particular, can’t keep going higher.  But we expect the overall CRB index to at least begin to consolidate, if not roll over.  Bottom line here is that it is time to be defensive as the “easy trend following money” is likely to have passed.�
Crude Oil:
Crude oil closed last week near the 145 level but opened this week and almost immediately fell to test 140.  Five Dollar moves in crude oil used to be a massive day but now it’s just an average day.  We still see signs that we could spike above 150 before topping but we are getting very close to a near term high if we are not already there.  Longs need to lock in gains and protect paper profits now.  This is not the time to be greedy.  We are exiting longs and in some cases even buying puts this week.�
Natural Gas:
The break we warned about in last weeks issue looks to be happening this week.  The August contract would have to close below 12.50 to signify a break in trend so wait for that before attempting to short.  This could just be another dip to buy so those with a high degree of risk tolerance can look to buy this dip with stop and reverse orders below 12.50.�
S&P500:
This market is still trying to hold support near the 1250 level.  While we may head fake below that level a bit this week, but we still feel that buying this dip is smarter than chasing it lower.  We are working stops from 1245 down to 1234 on longs that were taken between 1255-1275.  Our target remains at 1325.  Again buying dips this year has been harder to stomach, but it has still worked more times than not.�
Bonds:
Bonds have continued to rally as stock investors run for cover.  We do feel that the short term bounce in bonds is all but over and are now exiting the remaining long 112 and 113 calls we recommended two weeks ago.  At the same time we are now looking to buy the September 115 puts.  We are buying these puts with a trade weight of 50% of the position that was taken on the long calls two weeks ago.  In other words if you went long 10 calls with us two weeks ago we suggest you exit them now if you haven’t already, and then buy 5 Sept. (…)

Weekly Outlook for Forex

General Comments:
This week we have both a large amount of data coming out and a shortened week here in the States due to the 4th of July holiday on Friday.  All eyes remain fixed on Crude Oil.  The market very much expects Triche to raise rates later this week in an effort to slow inflation.  At this point it looks as if they will follow through with that and if they do we expect to see the Euro retest the old highs.  Bottom line is simply waiting to see how the rest of the world begins to battle inflation.  Bumbling  Bernanke and company tried to down play inflation in their statement last week.  This is just plain ludicrous and shows what kind of a dream world he lives in.  Even a person living in a cave knows that inflation is rampant and only getting worse.  I realize it is their job to lie to us, but for the love of god, do they really think that all of us are that stupid? (…)

Weekly Outlook for Commodities

The FOMC did nothing as expected.  Really not much they can do but sit by and watch the destruction happen and wonder why.  As if they were not the cause.  The reason we are in this mess is simple.  The devaluation of the Dollar is the culprit.  Never in the history of recorded time has devaluing a currency helped the long term prospects of the underlying economy and yet Bumbling Bernanke and company feel that they have the power to rewrite history.  Mr. (…)

Weekly Outlook for Forex

This week we are looking squarely at the summer doldrums.  Markets are drifting more than anything else.  We do not expect any abrupt change interest rate policy out of any major Central Bank anytime soon, so we do feel that many markets are currently a bit out of step with that idea.  That presents us with a number of opportunities this week.  While many markets have expanded their respective ranges we do not expect immediate follow through in most cases.  So our overall plan for the week is to fade many of the moves we saw last week as those extreme levels are tested again. (…)