Here is what I believe is a pretty good set-up for the $ this week:
The int rate is coming out on Wed. Few economists expect it to change from 5.25%. Friday's CPI numbers were in consensus. The PPI is coming out Tue. Most economists expect the PPI to be in consensus and quite a few say better. If the PPI is in consensus or better, obviously the market will be in the opinion that the rate will not be increased. Since everyone expects that, there may not be too much initial movement, (although an intial move is still possible so be ready for it). Watch the dollar at this point for a large negative move. If it drops 25 pips or so, short it.
I'm hopin that the dollar doesn't move too much after the PPI and the market waits for the rate on Wed. After the rate is annonced, if there hasn't already been a big negative move, here's what I believe will happen in the hours afterward: The market will interpet the in-consensus data and the non-move in the interest rate as meaning that not only is there is almost no further possibility of a rate increase, but that there is a good possibility that there will be a rate decrease in early 2007. Therefore, it is very possible that the $ will take a major hit, especially against the EUR and Cable. The EUR could go well into the 29's and possibly even hit 30, with cable going into the 89's. The move will happen gradually over 1/2-3 hours if there is no big move initially. So the plan is to be prepared for a large initial move, but if that does not happen, watch the $ and if it drops 25 pips or so from where it was prior to the rate annoncement, short it.
The only thing that would upset this scenerio, is if the dollar drops all week and hits those levels by Wed before the rate announcement. This could be possible as well, since alot of people do expect the numbers to be in consensus and traders might sell accordingly. I think that the test will be what happens to the dollar after the PPI. You're going to have to watch the $ all week, but as I said, if the PPI is in consensus or better AND the $ doesn't make a major negative move before the rate announcement, it is very likely to do so afterward, but likely it will happen over several hours. Good luck.
Your opinions please?
NewstraderFX
The int rate is coming out on Wed. Few economists expect it to change from 5.25%. Friday's CPI numbers were in consensus. The PPI is coming out Tue. Most economists expect the PPI to be in consensus and quite a few say better. If the PPI is in consensus or better, obviously the market will be in the opinion that the rate will not be increased. Since everyone expects that, there may not be too much initial movement, (although an intial move is still possible so be ready for it). Watch the dollar at this point for a large negative move. If it drops 25 pips or so, short it.
I'm hopin that the dollar doesn't move too much after the PPI and the market waits for the rate on Wed. After the rate is annonced, if there hasn't already been a big negative move, here's what I believe will happen in the hours afterward: The market will interpet the in-consensus data and the non-move in the interest rate as meaning that not only is there is almost no further possibility of a rate increase, but that there is a good possibility that there will be a rate decrease in early 2007. Therefore, it is very possible that the $ will take a major hit, especially against the EUR and Cable. The EUR could go well into the 29's and possibly even hit 30, with cable going into the 89's. The move will happen gradually over 1/2-3 hours if there is no big move initially. So the plan is to be prepared for a large initial move, but if that does not happen, watch the $ and if it drops 25 pips or so from where it was prior to the rate annoncement, short it.
The only thing that would upset this scenerio, is if the dollar drops all week and hits those levels by Wed before the rate announcement. This could be possible as well, since alot of people do expect the numbers to be in consensus and traders might sell accordingly. I think that the test will be what happens to the dollar after the PPI. You're going to have to watch the $ all week, but as I said, if the PPI is in consensus or better AND the $ doesn't make a major negative move before the rate announcement, it is very likely to do so afterward, but likely it will happen over several hours. Good luck.
Your opinions please?
NewstraderFX
