Economic Calendar http://www.dailyfx.com/export/sites/dailyfx/files/Calendar-11-04-2007.pdf

This week’s currency story is still about the Canadian Dollar

Well let’s start of with what that Loonie is doing. It was pushed once again to record highs on continued high Oil prices back above $91/barrel and Gold creping over the $800 mark. And to cap off the trading week, great numbers were registered in ‘Employment’ Friday morning for Canadians in the month of October. This is all continuing to fuel the Loonie’s continued move of strength, especially against the US Dollar.

The value of the Loonie though is starting to put the Bank of Canada between a rock and a hard place. There are still surges in good economic news and at the same time the currency has moved so far so fast and for so long that it is putting severe pressure on the Canadian manufacturing sector. This is causing many factories to relocate outside Canada, reduce production or close all together. If Canada continues to reduce its value added manufacturing and becomes even more reliant on commodities to sustain its economy, then what happens when commodity prices cool off?

This becomes a conundrum for the Bank of Canada in that raising rates should cool the economy but will create more pressure on further increasing the value of the currency and the speculation cycle accelerates some more. Watching what the Bank of Canada does over the next month or so will become sport for most of us as it will be interesting to see how the Banks tries to put balance back in the economy. Most of the action on the CAD right now is traders looking for any excuse to buy it some more. As long as this goes on, we will see the same direction. Just keep a watch out for the end.

Now what about the GBP and EUR versus the USD

This is becoming very interesting as well. Earlier this week we saw the FOMC role the US interest rate back by ¼ percent. This had an anticipated result of further erosion of the value of the USD. And then on Friday the Employment rate figures released for the US showed much better than expected data. This should have sent a signal that the US economy will weather the ‘Credit Crisis’ better than anticipated, and there has been pour news out of the Euro-Zone particularly in the banking center. Based on this, the most likely move on the currency Friday morning should have been for some USD strength. What was seen in the New York trading session Friday morning, was high volatility range swings with the eventual late session return to record weakness for the Dollar.

So what of next week and next month. Many economists and news writers are starting to talk about how the dollar is now oversold and is being pushed by its momentum rather than by the balance of economic factors between the US and the Euro-Zone/Great Britain. So now that we have hit the $1.45 mark we should be cautious about it going much higher. Next week, it’s both the Bank of England that of the European Central Bank’s turn to set its rates. Note that both rate announcements are on the same day, so we are likely to see a lot of volatility this coming Thursday.

Pierre Charlebois

EUR/USD:
RESISTANCE: 1.4600
SUPPORT:1.4315
SENTIMENT: TOP IS NEARING
 
GBP/USD:
RESISTANCE: 2.1020
SUPPORT: 2.0605
SENTIMENT: TOPPING
 
USD/JPY: 
RESISTANCE: 116.70
SUPPORT: 113.25
SENTIMENT:BEARISH
 
USD/CHF:
RESISTANCE: 1.1785
SUPPORT: 1.1295
SENTIMENT: STILL BEARISH SHOWS BOTTOMING
 
USD/CAD:
RESISTANCE: 0.9530
SUPPORT: ?
SENTIMENT: RELENTLESSLY BEARISH
 
GBP/JPY:
RESISTANCE: 241.35
SUPPORT: 236.90
SENTIMENT: MIXED WITH BEARISH BIAS

EUR/JPY:
RESISTANCE: 167.70
SUPPORT: 164.00
SENTIMENT: MIXED