Dear Traders,
A bad week for the USD as it has hit virtual all time lows vs the euro, aud and cad. Oil hit an all time high on Friday and this theme is expected to continue into next week. I know a lot of traders continue to go long usd/cad and short eur/usd as they attempt to pick a bottom in the USD but like I have said before, this is a losing strategy in the long run as it is very tough to predict tops and bottoms in the forex markets. Your chances are just as good as winning the lottery. However retail traders continue to short eur/usd and get punished in the process. This certainly explains why over 90% of retail traders lose money and forex brokers continue to make millions!
Looking at the week ahead there are 2 major event risks that stand out. One is on Wednesday where the FOMC interest rate decision which will be due at 2.15pm EST. This is on Halloween and the market will be expecting a "treat" from the Federal Reserve in the form of a 50 basis point reduction. A 100% chance there will be a 25 basis point cut but there are many on Wall Street who are arguing for a 50 basis point cut. If the FED really cuts by 50 basis points Oil will be well over $100 bucks and the Euro will be above 1.45 level. The Federal Reserve and the Bush administration definitely want a weaker USD, so it is possible we might see a 50 point cut. A 25 basis point cut might give the USD a relief rally, but I believe all USD rallies should be sold as the FOMC will probably cut at their next meeting. I saw an interview on CNBC with former Treasury secretary John Snow and from the tone of his conversation he also implied that the USA wants a week USD as it will help with their exports. Microsoft on Friday reported block buster earnings and I am sure the weak USD definitely helped their bottom line. The second event risk will be on Friday in the form of NFP. The market expectation is for around 110,000 new jobs to be created. This looks like a very optimistic number indeed and this news event will be closely watched by the fx markets.
Lets take a look at what major news releases are due out next week, on Monday we have nothing and on Tuesday we get the consumer confidence numbers. Wednesday we will get GDP results for Canada and the USA. But all eyes will be focused on the FOMC later on in the session so the GDP numbers might have a muted reaction in the forex markets.
Thursday we will get the CORE PCE deflator numbers followed by the ISM manufacturing numbers. Again both these reports might get a muted response from the fx markets because on Friday the big enchilada is due - NFP numbers at 8.30am EST.
Definitely a market moving week coming up, the main focus will be the FOMC on Halloween.
Take care
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