The Dow had fallen consecutively the entire week, even amidst strong profit reports from Google Intel and Nokia. Selling pressure was especially felt on Wednesday where the Dow had gained almost 100 points on opening, yet by 2pm, lost more than 100 points. Selling continued on Friday, with the Dow closing at 13,522.02, losing another 366.94 points.

USD Exchange Rate

Last Friday also saw the dollar being battered once again. The yen had strengthened to 115.15 to the dollar. This had inevitable affected funds still involved in yen carry trades, causing the Dow to spiral downwards Friday. Of slight comfort is that the USD Index has met both a double bottom and positive divergence. This might hopefully point to a movement northwards for the dollar. If the dollar breaks this double bottom, we have to be prepared for a larger than expected correction.

Oil Price

As you drivers would know, oil prices have been steadily moving up. Last week, it had crossed over the 90USD/bbl mark. Of course many economists have argued that there is no real cause for such a sudden increase in oil prices and there is currently still no strong shortage of oil. This rise in oil is probably due to the sudden decrease in the USD as well as troubles brewing along the Turkey / Kurdish border. Punters that had heeded our SPC buy call would had been well rewarded. We expect the oil price movement to be dependent on the USD.

Whats ahead?

What’s keeping me awake is the USD. Going down further will cause much strain on the trade deficit economy. America, being a consumer society will face the reality of rising import prices, which would slow down the growth of the Chinese. A weak USD also threatens to unravel the yen carry trade. And it will put Mr Ben in an extremely tight position this Halloween. Will he deliver a trick or a treat?

So how?

A lot of traders must have had a sleepless weekend. I would strongly advise against picking up any “bargains” in the near future, until a clear reversal trend is seen. I would also recommend trimming off any weak positions. Set a cut loss limit and once breached, just close them off. Stay nimble and protect your capital.