Cliff Wachtel's  Instablog

Part 1 of Weekly Review/Preview: Prior Week Market Movers & Their Lessons For the Coming Week

The following is a weekly summary and strategy guide for traders and investors, covering prior week's market movers and their lessons for the coming week for traders of all major asset classes via both traditional instruments and binary options.

There were only two really market moving events last week, both on Wednesday. In keeping with the current dominance of government policy over the markets, both came from the two most influential central banks.

• The ECB's LTRO operation to provide cheap liquidity to cash starved EU banks. In theory this should have been good for stocks because it adds liquidity that should boost stock prices. In fact stocks fell because the large number of banks participating (~800) suggested widespread liquidity trouble at smaller EU banks. Also, LTRO should have hurt the EUR, which it did, because like the US QE programs, it threatens to dilute the EUR's value and promote inflation.

• Fed Chairman Bernanke's semi-annual monetary policy report before the House Financial Services Committee, which reduced expectations for QE 3. As expected, that both hurt stocks (because it meant less cash available to boost stock prices) and boosted the USD vs. the EUR and other major currencies because it reduced the chances of another QE program boosting the supply of dollars and weakening their purchasing power.

The two events reinforced their similar effects on market sentiment, reversing the 'risk-on' trend prior to Wednesday. The rally in most risk assets stalled, and the USD index moved higher the rest of the week for its biggest weekly gain this year, and possibly forming a bottom in its downtrend from the start of 2012.

Here's why the odds favor a pullback in most risk assets, including the EUR, and rally for most safe-haven assets, including the USD.

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If you want to know more about how to protect yourself against risk of crashing markets and currencies, stay tuned for details about my coming book, THE SENSIBLE GUIDE TO FOREX, SAFER, SMARTER WAYS to SURVIVE and PROSPER from the Start. It's the first book to show how traders and investors with limited time and risk tolerance can tap forex markets to hedge currency risk and improve returns. It's due out September 2012, available now for pre-order.

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER. IF WE REALLY KNEW WHAT WOULD HAPPEN, WE WOULDN'T BE TELLING YOU FOR FREE, NOW WOULD WE?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.