Currency traders are reliant upon the global equity and interest rate market direction to indicate on a regional basis the acceptance of risk, and by default at this time the value of the USD. Intra-day currency charts are clearly showing that momentum waves are hitting harder as regional commercial markets in Asia, Europe, and the US, open and close for business and start the daily grind of finding fair value on risk in each economic region.

The global business cycles are not yet showing signs of growth and there is no confirmation that the contraction/trough phase is finished. That is the main reason the USD is having such a hard time each day holding fair value, and why the major currencies traded against the dollar are becoming increasingly volatile.

When either contraction or expansion are in place in the global business cycle it is fairly easy to value risk via

The post-credit crisis rule book has been re-written, a new year begins with sovereign downgrades, and the ink dries on another central bank debt program, which has created plenty of nuances for inexperienced traders to learn, and an old habit to kick.

One of the most vaulted terms used from 2005 through to 2009 was the Carry Trade, as in: “Traders unwound the carry trade today”, or “Positive trading saw the carry trade bought today”, referring to the use of spot currencies to earn/pay overnight swap interest in-line with equity market risk outlooks.

The carry trade however has become a distant memory, unable to perform its core duty in light of reduced inter-bank liquidity, and impacted by the fear-of-loss that permeates through regional market open and closes. But what has happened to the carry trade and its JPY/S&P correlation?

The interest rate differential between central banks, (the difference between the

The labor market has been one of the hardest hits sectors of the real economy during the credit crisis, with the same trend being seen in most of the developed economies. The history of labor reporting indicates that employment is a lagging indicator of economic health, where the slack in an economy has to be absorbed before growth then leads to hiring.

With that accepted, there may still be a lot of pain in the labor market that is not being tempered by economic expansion signals, and not being captured in the dynamic changes and variations across ADP (private jobs), NFP (government estimates), Weekly Jobless Claims, and the sometimes jaw-dropping monthly Unemployment Rate.

From the very low and stable unemployment rates seen during the 2006 and 2007 period, the last four years created major pain in the labor market. The U.S. unemployment rate has more than doubled since 2006, from

The global equity indices benchmark, S&P 500, is back to Dec 1998 valuations, having also closed at a net sum gain in 12-months of 2011 trade. It would seem that Buy-and-Hold investors are in for a repeat of 2011, and many could be looking at 1.5% (three-session) YTD gains and wondering whether to bank now and take the year off.

A large number of market participants are saying that the U.S. business cycle will de-couple from global contraction, and is likely to recover in 2012. It is said the growth will be driven by strong demand now that the U.S. global economy appears to have diminished the pace of contraction, if recent economic releases are not subject to mighty revisions in the future.

That outlook however flies in the face of Federal Reserve Minutes that point to 2013 as the time that interest rate expansion, and therefore sustainable growth, will

The New Normal

The US debt ceiling will be raised (again) from $15.2 trillion to $16.4 trillion on Dec 30th in a political shell game that has no apparent ending. Once attention turns away from Eurozone banking system woes and bond market debacle, the impact of terrible US fiscal house-keeping may well be addressed by vigilante moves that cut equity and Treasury fair value in quick time.

In a strange twist of market mechanics, Eurozone banks are taking the funds made available to re-balance risk exposure under the ECN Long Term Repo Operation (LTRO) at 1% cost and are putting most of it back on deposit in the ECB overnight deposit fund at 0.25% gain.

European banks are taking cash from the ECB and instead of putting it to work in the open market are putting it back on deposit in their own name with the ECB, and are paying

Every country around the world has a currency that can be traded, not all however, have decent daily volumes, and some lack liquidity to such a degree that they are used only by specialists for very specific reasons.

A currency pair that has good volume but does not include the USD on one side of it or the other can be referred to as an exotic pair; they may be regularly traded, but not to the degree of the major currencies. The USD is on one side or the other of 90% of daily currency trade.

The first named currency on any pair is called the base currency. For example: USD (US dollar)/CHF (Swiss franc) has the USD first, which makes the dollar the base currency. If the quoted price of USD/CHF is 0.8650 it means that $1 is equal to 0.8650 Swiss franc. If AUD/USD is quoted as 1.0968

The post-credit crisis rule book has been re-written, and as the ink dries on another central bank debt program there are plenty of nuances to learn in the new-generation global market arena, and old habits to kick.

One of the most vaulted terms used from 2005 through to 2009 was the Carry Trade, as in; “Traders unwound the carry trade today,” or “Positive trading saw the carry trade get built into today.” However, the carry trade has become a distant memory, but what has happened to the carry trade and its Jpy/S&P correlation? Understanding what makes up cross pair trading values on the Japanese yen offers an insight into what happened to the Carry Trade.

The value of the Japanese yen strengthened from a low against the US dollar in June 2007, to a high in March 2011, because for the first time in decades it became as cheap to

Debates about the U.S. dollar losing its status as the main reserve currency are back and once again sitting front and center in light of exploding debt and fiscal imbalances and thin inter-bank liquidity levels.

Tenured traders and savvy investors have long asked the question of how long the reserve status can be maintained, saying that the dollar’s hegemony is likely to expose confidence problems for the emerging economies, since currency risks have the biggest impact to international macroeconomic flows.

The vast majority of emerging economies are dependent on inflows to sustain their government’s investments, or are reliant on international investors for direct investments to create jobs and to stimulate the economy by shifting the aggregate demand outwards.

However, foreign investments are substantially reduced by currency risks, which are the biggest uncertainty that overseas investors face when investing in an emerging economy. Currency uncertainty can be caused mainly by two

Client Note

Think Of a Number, Any Number

It is generally accepted that the human brain has a challenge in dealing with large numbers, and not massive numbers; just large numbers create an issue. Try to imagine thirteen apples on a table. Should not be that hard, but it still creates a challenge, just thirteen apples. What about thirteen grapes, or thirteen oranges; harder than it should be?

To get things into context, now think of a massive number, a really, really big one, and maybe think of what $175B of deficit looks like. Now, that is really hard to do, but to help out, $175 billion one-dollar bills stacked together would create a structure that replicated the size of most football arenas, or the average office block.

The stack of bills would be 500 feet long, 100 feet tall and 125 feet wide, and if stacked one on top

Market chatter will focus on European debt issues (again) due to an increase (again) in the cost of insuring inter-bank debt. Certain eurozone 10-year bonds are now yielding over 7% (again) which reflects an impossible task in achieving economic austerity as most lending rates are set around the prevailing 10-year yield.

As seen in recently, the allure of a high yield comes with the risk of the bond value being chopped when the Government is unable to meet its obligations. Holders of Greek and now Italian bonds will be expected to lose upwards of 70% of their initial value whenever austerity measures are agreed.

It would seem that Spanish and French bond markets are in line to receive the same treatment, which is good enough reason for risk markets (equities, commodities, EUR) to be sold, or at best for upside moves to be on light volume and unable to sustain

When a headline reads "Italian 10-year bonds are now yielding over 7%," what does it actually mean? In reality it reflects an impossible task in achieving economic austerity as most regional lending rates are set around the prevailing 10-year yield.

As seen in Greece recently, the allure of a high yield comes with the risk of the bond value being chopped when the government is unable to meet its obligations. Holders of Greek and now Italian bonds will be expected to lose upwards of 70% of their initial value whenever austerity measures are agreed (the Haircut). When yields (rates) go higher the government is forced to pay more to service their debt. The following high-level article explains how bond and interest rate markets work.

Bonds are traded between investors and institutions as a way of borrowing cash, with government bunds, gilts, bonds, and Treasury notes making up the borrowers side

Fundamental Outlook:

Market chatter will focus on European debt issues (again) due to an increase (again) in the cost of insuring inter-bank debt. Italian 10-year bonds are now yielding over 7% (again) which reflects an impossible task in achieving economic austerity as most regional lending rates are set around the prevailing 10-year yield.

As seen in Greece recently, the allure of a high yield comes with the risk of the bond value being chopped when the Government is unable to meet its obligations. Holders of Greek and now Italian bonds will be expected to lose upwards of 70% of their initial value whenever austerity measures are agreed.

It would seem that Spanish and French bond markets are in line to receive the same treatment, which is good enough reason for risk markets (equities, commodities, EUR) to be sold, or at best for upside moves to be on

Apparently nobody told the Green-Shoot main street media that the Trough part of the global business cycle takes a while to get out of and that for many the recession did not end in 2009. The lack of liquidity on offer between financial institutions and the high cost of insuring CDS (Credit Default Swaps) will weigh heavily on any market being able to move too far in either direction in the near-term.

Traders see the same pattern of trade in virtually every session now that enough dark clouds have hit the horizon for even the most optimistic analyst to start to consider weaker forward growth and lower earnings outlooks. Eighteen hours of futures market trade that stair-steps higher tend to take the elevator down in two 30-minute periods of trade each day.

Headline-driven trade on low participation levels dominates each trading session, with Asian and European trade now

Headlines

Anticipation of the Friday non-farm payroll release from the U.S. is building, and will likely contain currency movement within this week’s trading ranges. Trade desk updates have called for consolidation at support above 72.50 on the dollar index (DXY) (74.40) in the mid-term, and to monitor resistance at 76.50 very closely.

Outlook

The potential for new trade signals to form today is weak, and open positions should be closely monitored. Today is not the day to be looking for USD-based trades to easily follow through. The eurozone bank holiday has impacted order flows.

Global traded markets have recently sold equity indices, and as a consequence of its inverse relationship, have bought the USD. However, the inverseUSD trade is currently less well aligned to S&P 500 movement than the 36-month 75% read. The near-term weakness in correlation is a consequence of recent U.S. economic reports that are creating a very

S&P 500 futures (ESM1) (1339) are at a pivotal price point at 1340, with the path of least resistance seeming to be a technical and fundamental drop to support. Recent participation levels have been very weak, with some trading sessions close to 50% off daily averages on the main indices.

Adding to the bearish potential over the next two months of trade will be the lack of upside momentum generated from earnings-related news headlines. Recently published data from Q1 hedge funds that show a change in outlook toward Apple (AAPL) and Microsoft (MSFT) may also weigh on sentiment.

A trading signal will be generated to sell S&P 500 with a session close below 1333, which will target 1328, 1323 and in the mid-term 1315. The SPY (134.35) exchange traded fund that tracks S&P 500 futures momentum historically lags behind the main index, and a sell signal will start to not

News wires are quiet in regard to equity valuations ahead of the minutes from the FOMC meeting in April, which are released on today. Earnings season could easily ignite another big move in equity valuations that traders will have to negotiate. Trade desk updates have called for continued consolidation at support above 1320 on S&P 500 (SPY), above 7250 on the German Dax, and above 9500 on the Japanese Nikkei. If these areas are broken at the close of business this week, global equity sentiment will turn bearish.

SPY, the exchange traded fund that tracks S&P500 momentum, is consolidating above support at 132.50. Expectancy is for a continuation of recent trade that is caught in a sideways channel. It will be breaking news headlines that generates enough momentum to clear, either long or short, the current trading channel, and more than likely those headlines will be Federal Reserve or

Margin hikes and increasing oil inventories in the US have impeded the ability of crude oil to move higher in recent trade. TheLFB client notes have called for consolidation at support above 95.00 on West Texas Intermediate [WTI] and to expect a break higher in crude prices.

TheLFB market alert service recently highlighted the fact that long-WTI positions would need to be closed if support at 101.50 was broken. The closing of long positions turned into a signal to potentially sell WTI with a break of 100.00, targeting 97.90. The trade signal was in-line with global equity and risk markets finding sellers.

Outlook:
The correlated WTI selling move in USO (38.50), the exchange traded fund that tracks crude oil movement, took longer to form. The potential was not, however, actionable for clients after USO opened at 38.70, sixty points lower than the previous close, and missed the entry

Wednesday saw a negative start to Wall Street trade, with equities and commodities moving lower as the trading session got underway. The initial moves subsequently built momentum as the cash market in Europe closed, but the warning signs were in place long before the 09:30 ET opening bell sounded.

The buying potential seen in our trade signals created recently in Humana (HUM) from 77.20, Intel (INTC) from 23.20, and Armstrong World (AWI) from 46.20 would be negated by a drop in global equity indices values. However good a buying potential seems to be on an individual stock, the days that equity indices are falling in value are not the time to enter a new position.

When risk is being sold in the wider market, attention needs to be paid to the near-term impact on high liquidity stocks. The swing in global equity sentiment meant that upside potential would

Newswires are highlighting margin requirement increases in crude oil markets, which follow recent bullion market margin increases. Middle Eastern unrest is still on the docket as another reason for oil price volatility. US oil inventories have been better than expected recently, which has helped maintain uncertainty over fair value. Our client notes have called for consolidation at support above 95.00 on West Texas Intermediate (WTI).

Outlook

Potential signals to buy WTI from 99.50 were forming on Monday but failed to confirm that both potential; momentum would be strong enough to easily follow through on Monday. A tradable call to action is again close to forming on WTI, with a trade signal that looks to buy WTI with a break of 102.00. Initial targets will be 103.60 and 105.80.

Sentiment towards WTI trade remains bullish. Price action favors a bounce off support that buys the recent dips. Caution is required if

Sentiment toward the five main ETF funds we track are all showing a near-term vulnerability to reverse lower, inline with overall global equity weakness. The outlooks on financials (XLF), technology (XLK), energy (XLE) and emerging markets (EEM) remain mixed. Momentum favors the short side of trading, but caution is required in expecting a collapse in ETF values ahead of the non-farm payroll jobs report from the U.S. on Friday.

After a large increase in March ETF volume levels, which correlated with the volatility created in reaction to the Japanese earthquake, April ETF volume numbers have shown a dramatic change in pace. There was a broad market tumble in equity volume last month, and as ETF transactions account for over 30% of equity market volume it is obvious that main funds are going to be light on commission fees in April.

S&P 500 SPDR notional volume levels took a cliff-dive lower,