The Dollar has rallied back against the yen amidst today's positive ISM non-manufacturing data, which beat expectations (discussed in previous post). But stocks retreated as more banks came out with bad news. It probably makes sense for banks to finally disclose some problems and admit mistakes now that the stock market has rallied back to pre-August subprime panic levels. At least the liquidity situation seems to have recovered, and risk appetite might be growing again. This is evident in the reemergence of the yen carry trade on the backdrop of the yen's big long-term technical breakdown following a bearish triangular formation (shown below). With Japan pumping as much money into the economy as the US, a yen sell off to 118 in the short term may be possible. More positive employment data this Friday will trigger another yen sell off.
[Yen futures: One-Year Chart]
Gold and Silver have rallied hard since 9/18 (rate cut), but they are now back to 9/18 support levels amidst a crude sell off and a dollar rally (fueled by stock rally and positive economic data). A break below these support levels will be bearish, and gold may drop to $715/oz while silver may drop to $12.8/oz. Negative employment data this week will help gold and silver hold its support, as it will reinforce a rate cut at the end of this month.
[Gold futures: One-Month Chart]
[Silver futures: One-Month Chart]
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