Long USD Trends, Neutral on Momentum

Includes: SPY, UDN, UUP
by: The LFB

Forex Trader Note: The Global Market Driver reads on the 4 hour charts are showing Usd long trends and importantly, a neutral read on momentum. That tells us that the path of least resistance has been to buy the dollar, but that sentiment and order flows have weakened. The dollar rally stalled recently, as shown in the pip counts below for the whole of last week.

Eur/Usd +10. Gbp/Usd Flat. Aud/Usd +30. Usd/Cad -50. Usd/Chf -50. Usd/Jpy +50.

In all, less than a net 100 pips of movement, that was against the Usd, achieved in an environment that equity and commodity markets offered the chance for the Usd to easily add to recent gains. After seeing this, we will be watching to see if a swing point high on the dollar index will be formed.

Whatever trade direction is taken it may be beneficial to reduce the lots size and set smaller targets until momentum builds. There has been separation between the major pairs in the strength of their movements, and for the first time since the credit crisis hit home we are seeing diverging dollar index components, with varying percentage moves from each pair.

An overbought dollar will reverse tack at some stage, but as we have seen in recent trades, so long as equities and commodities struggle to move higher the dollar will hold onto recent gains. The Usd/S&P/Oil correlation is not in play in the near-term as strongly as it has been over the last 18 months. Instead we have seen strong reactions to news and economic releases, again, something that has not been in play over the last 18 months.

The move has been to buy the bond and Treasury market, and in general move to Usd denominated Treasuries, when equities and commodities were not moving higher. We will monitor the strength of that link in early trade this week, because added to the low pip count from last week, it strengthens the case to look for some Usd consolidation.

Keep an eye on our Trade Plans; they are producing pips at a great rate of knots, week in and week out, on moves that are unfolding too quickly to signal. The Trade Plans generated 700 pips in Thursday and Friday trade. (Keep in mind that the signal service is nothing more than highlighting the trade plans that look to have more potential than the others to follow through ahead of time)

Red Flag Economics:
08:30 EST Cad Retail Sales Exp 0.5%, Prev 1.1%
16:45 EST Nzd Current Account Exp -2.01B, Prev 0.12B

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: 77.00

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: 1095

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: 73.50

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 place. Swing Point: 1095

Disclosure: No positions