Peter Bain Forex Trading Commentary Friday February 17, 2006

Forexmentor.com Currency Trading Price Action

Again today, on the pound, it was prudent to evaluate price action, by observing its behavior in relation to the 89 and 144 EMAs, at all levels. This we did onTuesday of this week with similar successful results. After the London open today, price bucked the trend once more on the 15 minute, by going overbought –above both EMAs, while it ‘reached’ for M3 (a resistance pivot level) on an M1/M3day. M3 is the expected high today (Friday, February 17/06). Price was BELOW those EMAs on higher charts – the daily and hourly. When price headed for M3, itwas in a ‘sell’ area (above the central pivot point) – so, it was logical to expectprice weakness, once price tested that level in the form an elongated invertedhammer and quasi-railway tracks.

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Forexmentor.com Forex Trading News

Ben Bernanke, the new chairman of the Federal Reserve, commented yesterday that the U.S. economy is picking up speed, and that higher interest rates may be needed to quell the risk of inflation. According to his testimony, we can expect the benchmark overnight lending rate to rise at least once more to 4.75%, when the Fed meets again in March. Higher interest rates mean higher borrowing costs for businesses, and less buying power for consumers. He was delivering his maiden semi-annual monetary policy report to Congress, which was interpreted to be on the hawkish side. His comments put a bid tone on the U.S. dollar.

Industrial production output fell in January, largely due to a drop in power consumption, because of warm weather. However, factories and mines output were higher, fuelling inflation concerns. There are also reports of robust employment and consumer spending. Translation – the U.S. economy is running near capacity.

On other fronts, gold has been weakening, as energy costs have been abating, thereby becoming less attractive as a hedge against inflation.

Peter Bain Forex Trading Commentary for Thursday February 16, 2006

Forexmentor.com Price Action

It sure looks to me like we've bottomed out on the pound, if you notice how price is respecting the most recent trendline on the daily chart, and if you take into consideration the fact that the big dogs are going longer with their COT positions.The GBP/USD pair appears to be very much oversold at all levels - price being below the 144 EMA, in each case. We had a 1-2-3 bottom occur well after the London open on the 15 minute chart - confirmed by a trendline break (which was validated by a MACD crossover). The key thing to watch for here is how pricerespects the trendline on the daily chart. A break 'down' would certainly be bearish for the pair. However, I wish to remind you that the commercial traders are going longer with their COT positions, which foretells upward price action at some point. Unfortunately, COT data is often early in relation to its effect on price direction. Note: When you have a trendline break, as referenced above, it is not unusual for price to come back and test it, before it carries on in its new direction.

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Forexmentor.com News

The Bernanke testimony would lead one to believe that the Fed funds rate is going to at least 5%, although it would be safer to expect something closer to 5.5%, should unemployment fall further. There were no surprises in his testimony. The Fed is expected to firm its monetary policy at a measured pace to contain inflation. Alan Greenspan, Mr. Bernanke's predecessor, hiked rates 14 times over the past 18 months.

Stronger-than-expected retail spending in January showed sales rose 2.3% during the month. This was the most significant piece of news data to come out in weeks. With this new information, and unemployment being as low as it is, the economy isn't looking all that bad. That said, we must not forget the record trade and budget deficits and higher energy prices. At some point, these factors have got to weigh heavily on the economy, one would think.

Peter Bain Forex Trading Commentary: Wednesday February 15, 2006

Forexmentor.com Price Action

The pound recovered yesterday ~at the London close, after a significant swoon in price, that started when price was severely overbought just before the London open. That turnaround was facilitated by positive divergence on both the MACD histogram and Stochastics. Price, since then, headed north-ward, exactly as the price projection dictated. After some ensuing weakness coming into today's session, the GBP/USD pair made a run for the expected high (M3) on an M1/M3 day - the second day in a row for that M paradigm.

Of course, that resistance point did not hold, and even higher ground was achieved. The trend is still down on the daily chart, but we could be witnessing a change in that attitude, as a demand/support trendline is now deing respected.

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Forexmentor.com News

Traders are fretting that Ben Bernanke, the new chairman of the U.S. Federal reserve, will raise short-term interest rates higher than originally thought - this due to a healthy labor market in the U.S. Of course, such a tough stance on inflation would be economy-negative. A slowdown there would most certainly drive the energy and metals components of the Canadian economy down as well.

The unemployment rate in the U.S. is now at a four-year low of 4.7%, giving rise to the notion that the Fed will want to maintain its inflation-fighting stance.

The U.S. yield curve is also troubling, in that short-term bond yields are rising considerably above long-term bond yields. This phenomenon is called a yield curve inversion. Whenever this occurs, a recession is not far behind.

Peter Bain Forex Trading Commentary Tuesday February 14th, 2006

Forexmentor.com Price Action:

With the daily, hourly, and 15 minute charts for the pound all showing downward price action, according to the 89 and 144 EMAs, it was logical to expect further erosion in price coming into today's session. That we got after the London open, facilitated by negative divergence on MACD. Further, today was declared an M1/M3 day, by virtue of the close at midnight ET being lower than the open 24 hours earlier. It's interesting to note that the 'Jeff Hughes trade' was also helpful in nailing the collapse in price that occurred shortly after 4 am ET. The 10 EMA punched down through the 80 EMA (read, 40 smoothed) on the 5 minute at 4:15 am ET, whilst STO (Stochastic) on the hourly went from being slightly overbought to trending down.

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Forexmentor.com News:

The Canadian economy saw the biggest drop in its manufacturing employment in 15 years in January, but other areas of employment are still solidly intact with respectable increases in new jobs, and Canada's trade with the rest of the world (exports and imports) soared to record levels in 2005. Exporters seem to be coping quite well with a higher Canadian dollar, and exports do not seem to be adversely affected. The Bank of Canada will more than likely go through with two 25-basis-point increases this spring, seeing the overnight target rate rising to 4.0%. We could even see two more in the fall.

On the U.S. side of things, their deficit with China has tripled since President Bush took office five years ago. As a matter of fact, the States has also racked up a record trade deficit with Canada and its other major trading partners. It's not surprising then that there is a surge of calls for curbs (read, protectionism) on Chinese imports, substantial changes in the yuan-U.S. dollar exchange rate, and the need for China to allow more U.S. goods into its country. That said, the U.S. economy has grown significantly, more so than the rest of the world. Although this situation seems to be slowly reversing. It's not only Chinese imports that added to the record trade bill last year for the U.S. They imported record amounts of crude oil in 2005.