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Market Wire Update:
Major Pairs Diverge
Forex Trader Note: Canadian CPI (rates of inflation) numbers were very strong last month, posting at 0.4% on the Core read, up from 0.1% in the previous month. This should eventually filter through to Canadian dollar strength, but only once the global equity markets find buyers. Until then, any Usd strength may be slightly muted in the Usd/Cad pair.
The last two trading sessions of the week will very likely have break-outs and reversals in equal measure. Global trade has pushed oil, gold, and equities to near-term support areas, that if break will lead to further Usd buying. When equities are sold, the general move is to the bond and Treasury market, and in general to Usd denominated Treasuries.
An overbought dollar will reverse tack at some stage, but as we have seen overnight so long as equities struggle to move higher the dollar will get bought.
There has been separation between the major pairs, and for the first time since the credit crisis hit home we are seeing diverging dollar index components, with varying percentage moves from most. History tells us that the next six weeks are historically bullish for stocks and bearish for the dollar, and therefore adding new short-Usd based positions may have to wait for the pull-backs.
Overnight Usd trade has broken, held, and then continued higher, and in doing so has created one of the first sessions in a long time to has continuing 24 hour momentum throughout the three global sessions of trade. Until now most moves have been to break, consolidate, and then only break again as the next news release hit.
Whether this is direct Usd strength, or global market risk aversion remains to be seen, but with a quiet economic calendar for a while we at least will get to see the markets momentum levels. Look for S&P Futures holding 1095, and ultimately 1085 as support, with 1105 and 1110 as upside resistance.
At the same time we will look for gold to hold 1110 support, with 1035 resistance, and oil to oscilate around 71.50. If these ranges hold, the U.S. session may become range-bound in regard to Usd moves.
Keep an eye on TheLFB Trade Plans; they are producing pips at a great rate of knots, week in and week out, on the moves that unfold too quickly to signal. (Remember, Short Equities makes it easier for the Usd to go higher).
Red Flag Economics:
07:00 EST Cad CPI Exp 0.4%, Prev -0.1%
07:00 EST Cad Core CPI Exp 0.1%, Prev 0.1%
08:30 EST Usd Unemploy Claims Exp 470K, Prev 474K
10:00 EST Usd Fed Manufact Index Exp 16.1, Prev 16.7
Dollar Index: The dollar index went into Neutral mode on 26th Oct and moved tentitively Long in December. The near-term path of least resistance is consolidation around new highs, with long-bounces on weak equity trading days. The weekly close above 76.00 was a signal that buyers are dominating, and signaled the potential in a momentum reversal. Swing Point: 77.20
S&P Futures: The S&P futures market confirmed a Long momentum read on Nov 11th and has built a near-term support base around 1095 and 1085. The 1105 and 1115 area will be a major resistance point to now close above this week. The moves to test and hold support are impressive, and now backed with Japanese and German markets that are also looking bullish. Swing Point: 1110
Crude Oil: There is still a very flat momentum read to crude oil trade that has been in place since 6th Nov. The 72.50 area continues to be a main price point, after sellers were held at bay recently around 69.50. The 75.50 area is the topside number to breach. Holding above 70.00 this week looks set to trigger long orders, and will pressure the dollar index being able to move too much higher without a pull-back to test support. Swing Point: 73.95
Gold Bullion: Gold signaled long on 3rd Nov and started to reverse that mode in December with bouts of profit taking. 1110 is near-term support, backing any further long tests of 1150. Now looking for signals that support is in to buy a Jan Call option, or if 1100 fails to hold, and to then buy a Jan Put option. Swing Point: 1133
