Teach Talk Trade Day Trading & Technical Analysis

Thursday, 20-Dec-2007

The Dollar may have well run into the Perfect Storm…..  The Central Bank in Europe is likely to raise interest rates just five days prior to the FED’s meeting where the FED is expected to lower interest rates.  Inflation in Europe has picked up and it seems likely that the European Central Bank will raise short term interest rates to 4.25% from 4%.

This would be a boost for the Euro and a negative for the Dollar.  This may result in higher prices for Gold and other precious metals as well as Oil.  The European Central Bank is facing an increase in inflation in October to 3.3% and economist have raised their estimates to 3% from an earlier 2.7%.  They will be looking at a trend  that may well be headed higher.

The big problem for the European Central Bank is that they publish inflation targets and they have pledged to keep inflation “below but close to 2%” so they will have a problem here.  With a reading of 3% at this time, this is the highest reading in inflation in six years.  At the same time the German inflation rate is at 13%.  The European banks have suffered huge losses because of the mortgage backed securities meltdown.

So the European Central Bank has alot on its plate, and the 19 member governing board has made statements that it is undecided on what it will do.  I see it this way….. I believe the European Central Bank will keep its eye on inflation and increase the interest rate .25% and infuse cash into the financial markets.  If the European Central Bank increases rates and the FED cuts rates, then the gap between both will be reduced to .25%.

And the likely outcomes are:

The Dollar will fall
The Euro will climb
Gold will climb
Oil will climb
US equities will rally but then fall off

Please take advantage of the FREE 7 DAY TRIAL to The Morning Call (we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues with analysis and suggested trades) & The Mechanical Monkey where we discuss our mechanical trades with entries and exits.

I have had a Long position on since yesterday using a mechanical system to trade the 10 year note  TYZ07.   Base upon my mechanical trade in the TYZ07 based upon 60 min candles.  This morning the TY gapped up and I received an Exit signal at 111′30.  The uptrend has continued so far this morning and I will now wait for another long signal as the 34 ema is in an uptrend.  I will be on the sidelines for now and wait for the market to come to me.  It is tempting to short the doubletop on the 60 min candles but I will let my system work, not be emotionally pulled into a trade.   As a successful trader, one has to trade his plan bases upon the variables he has set.  Well let see what the market brings us

The December Dollar was lower in overnight trading as it has consolidated below the 10 day moving average and almost touched the T8.  The dollar is still in a steep decline and lets if 75.36 will hold as this was areas of support in the last couple of days.  The Stochastics and RSI have turned and a short term low may be near.  If the dollar continues to fall, it will be in uncharted territory and the downside will be very difficult to project.  We will just have to wait and see.