Fundamentally why the Dollars is strengthen when the DOW is down

With reference from http://www.fxcm.com/analyze-currencies.jsp

Stock and the country currencies
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There is a high correlation between the performance of the US stock market and the USD (against the Euro). A rallying stock market in any part of the world provides an ideal investment opportunity for individuals regardless of geographic location and as a result there is a strong correlation between a country’s equity market and its currency. If the equity market is rising, investment dollars will flow in to seize the opportunity. Alternatively, falling equity makes will have domestic investors selling their shares to seize investment opportunities abroad.

Stock up -> Currency strengthen
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Interest Rates
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If the market has uncertainty regarding interest rates, then any bit of news regarding interest rates can directly affect the currency markets. Traditionally, if a country raises its interest rates, the currency of that country will strengthen in relation to other countries, as investors shift assets to that country to gain a higher return. Hikes in interest rates, however, are generally bad news for stock markets. Some investors will transfer money out of a country's stock market when interest rates are hiked, believing that higher borrowing costs will affect ballance sheet negatively and result in devalued stock, causing the country's currency to weaken. Which effect dominates can be tricky, but generally there is a consensus beforehand as to what the interest rate move will do.

Interest Rate up -> Currency strengthen
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Unemployment Rate
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The unemployment rate is a strong indicator of a country’s economic strength. When unemployment is high, the economy may be weak – and hence its currency may fall in value.

Unemplyment Rate up -> Currency weaken
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GBP for this coming week 29 July 2007

Firstly, solely on technicals. Cables may go lower. WMA5 has already cross EMA21 and will head towards EMA55. Using fabonacci retractment, the nxt support line is at 2.0206 - not very far away. If WMA5 cross EMA55, the next support will be at 2.0058. Else if WMA5 failed to cross EMA55, the price may rebound to 2.0390 and hovers between EMA21 and EMA55. On the CCI side, most likely CCI(34) will make a oversold condition hitting -150. A good buy time will be when CCA(34) enters the BB(14, 0.9) boundary.

What will then cause the GBP to move down below to 2.0058 or retrace above 2.0390. The news. There are a few big news this week. GBP CPI, US Unemployment Claims and US employment rate. With the recent DOW and the Asian market taking a big dip, this will also affect the prices outcome. If the these news sing in the same tune, you can expect a uni direction next week, else it will be a case of moving between the two price band.

16 July 2007

GU

The market may break in both direction. A price value of around 2.0446 as well as 2.0220.
Though strongly, in my own analysis, GU has taken a turn, but becare not to fall into the trap. If a short is desired, wait for the crossing of the signal CCI(34) on BB(14,0.3). Signal WMA3 has already cross WMA5, so just be patient and wait.

EU

It has make a good turn around, but again I will suggest to wait for CCI(100) to cross EMA(7). In fact, EU will follow the direction of GU today.

11 July

GU and EU forecast.

GU climbed and made new high, breaking the 2.0220 mark. My indicators show that there is more momentum to climb high. Yes indeed, I have to abandon the short position and change them to a long.

EU climbed high yesterday too, rebounded from 1.3600. I got 20pips from it, but failed to catch the long after it rebound. Today, I will expect it to go long like the pound.

10 July - GU and EU

I am still expecting the market to take a dip.

There will be a Trade Balance report on GBP today at 1630hrs Singapore Time. The outcome may bring the GBP in either direction. Yesterday PPI anouncement has brought up GBP up. As such I may have to take loss and abandon and short position if price clear pass the resistance level at 2.0200.

EU has made a dip and I will expect it to go south towards the first support line at around 1.3600.

9 July 2007 Forecast

The following forecast is based on Singapore Time, on GBP, EUR, JPY and USD

GBP/USD

The are no big news affecting GBP, except PPI. But in my opinion, with the expected increase in oil prices, PPI will increase, therefore the impact on GBP/USD will not be that great.

Looking at the technical chart:

I expect the GBP/USD to go south, I put no figure to take profit, but watch out when the price hit EMA21 on the daily chart or when CCI hit the first BB. When that happens, a reversal may take place and GBP/USD may take a new high.

EUR/USD

After 3 black crows and a big white, I expect the EUR to go side way. Similar, I expect a dip first before a big movement up.