FX Futures Edge — Tuesday: October 25, 2011

The US dollar is finding support this morning against all the major currencies save for the always safe, and always sought Japanese Yen in cases of distress. The cause of this distress iare comments from German Chancellor Merkel, who said German is opposed to a phrase in the EU Summit draft that calls for “continued” ECB non-standard measures – which is where the ECB buys bonds in the secondary market.

This is a “true” Bundesbanker speaking, and it is the manner in which the Germans have always operated, with the current situation certainly outside of their comfort zone. But this is to be expected, for if the ECB continues to support both Spain and Italy via secondary purchases of their bonds – then they will be allowed to be borrow more than they should as the ECB will simply be monetizing their debt. This has put pressure upon the Euro, but we can find more stress in the equity markets rather than the currency markets related to this comment.

Moving on, we remain very interested in the current correction of the US dollar back towards its 200-day moving average at 76.54 – which has thus far held, but a several hour hold doesn’t suggest much other than it is indeed a major area of support. For us to become enamored, then we’ll need to see it hold for several days and turn higher – preferably with our models turning higher.

But at this point, that seems unlikely at least for another week in the least given the calculations behind them.Lastly, we find our short GBP/CAD position getting hit rather hard from about 7:30am EST as it has risen from 1.60 to 1.6243. The reason is that the Bank of Canada left rates unchanged, which was expected. What wasn’t expected was that they took out a need to raise rates amid a weakening economy. We are short from 1.6050, and we’ll use this.

Please see the attached pdf file for the full repo