Friday Is Options Expiration Day

Includes: SPY, UDN, UUP
by: The LFB

Forex Trader Note: Friday brings the last day of trading in the Options market, as well as being the quarter and half-year expiration. Forex traders will be eyeing the major pair’s Daily charts, because the 100 and 200 day Simple Moving Averages are in play; these are areas of major importance.

The same Daily charts are as deeply overbought on the dollar as they have been in a very long time. The reason that momentum reads have hit deep levels is that the Usd buying has been sporadic in December, and centered around five or six 4 Hour chart moves that have housed all of the percentage gains.

That exaggerated reaction to news releases and macroeconomic data has forced fair value to hit levels that have not had time to test near-term support, let alone to get back to test the break-out points. 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 in Thursday trade, so long as equities struggle to move higher the dollar will hold higher.

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.

Keep an eye on our 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. The Trade Plans generated 425 pips in Thursday trade. (Remember, Short Equities makes it easier for the Usd to go higher).

Red Flag Economics:
--:-- EST Jpy Overnight Call Rate Exp 0.10%, Prev 0.10%
--:-- EST Jpy BOJ Press Conference
04:00 EST Eur German Ifo Exp 94.6, Prev 93.9
04:00 EST Eur Current Account Exp -2.3B, Prev -5.4B
04:30 EST Gbp Public Borrowing Exp 23.1B, Prev 11.4B

Dollar Index: The dollar index went into Neutral mode on 26th Oct and moved tentatively 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: 77.50

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: 1108

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: 73.85

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: 1130

Disclosure: No positions