The first trading session of the week was a tired affair that lacked momentum and participation, due in part to the Japanese, Canadian, and U.S. bank holiday closures, and also due to anticipation ahead of the Q3 earnings reports that hit the wires over the course of the coming weeks.
Mortgage fraud (Mortgage-Gate), foreclosure challenges (Robot-Signing), high frequency trading (HFT), flash -crashes (NYSE:FC), quantitative easing (QE) rumors, Permanent Open Market Operations (POMO) from the Federal Reserve Bank of New York (FRBNY) allowing low-liquidity ramp-ups, and then currency wars (NYSE:CW) between Central Banksters, that all go to wrap up an acronym-based period of trade that is generating a rather sour tone.
The net result is a dollar index bounce off support, which was pointed out last week, as 76.50 on the index becomes a wall of support that will hold so long as S/P 500 ramp-ups cannot breach 1185 and hold on a weekly basis. Commodity prices are moving relentlessly higher, in-line with the Federal Reserve back-stopping risk and de-valuing the Usd ahead of the FOMC November 3rd interest rate announcement.
Treasury markets are generating ever-lower yields, which are being snapped up by investors willing to accept, that in a yield-starvation environment, the safety of bonds outweighs the risk of incestuous equity trading. Currency pairs look to be topping-out on the 4-Hour charts, although not yet signaling that the wider market is ready to create a mid-term reversal; not just yet anyway.
Welcome to the pass-the-buck, sound-bite reliant, not-in-my-back-yard, trading environment that has been generated ahead of the mid-term U.S. elections in an effort to put right thirty years of fiat currency trade and five years of gorging on leveraged debt that now has a pay-back.
Alice in Wonderland has nothing on the current situation as things get curiouser and curiouser with each passing day, while Tweedle Dee and Tweedle Dumb entertain the Mad Hatter and the Queen of Hearts.
You really could not make this up, as the Too Big To Fail (TBTF) financial institutions now wonder why they stopped at $7 billion when putting a gun to U.S. taxpayers heads in threatening a financial Armageddon (that they had created) if a bail-out was not forthcoming on that infamous weekend of horse trading, that apparently saved the world from financial collapse. (Alice meets Mini-Me?).
One of two things now has to happen; the financial industry melts down, re-forms, and comes back in smaller sized, less powerful entities, or more relief is handed out via QE from the Federal Reserve as billions more in taxpayer dollars get flushed into the financial septic system.
The inter-bank landscape really is very unappealing for most right now, and far too toxic for close inspection by anybody not endowed with a protective suit or a very thick public skin.
It may have been far less painful to swallow the Too Big To Fail pill back then, than it will be now to wade through the fall-out that is coming down the pike. Until a solution is forthcoming expect the FRBNY to continue to ramp up equity values whenever POMO days are in full swing, and expect commodity prices to trudge higher out of speculative interest in hedging the dollar rather than preparing for global growth and demand.
Expect gold to find buyers on the pull-backs, and expect the mother of all currency wars to develop as emerging economies vie for a seat at the old-cronies table, at the same time that the old cronies go to battle in an effort to get the U.S. administration to stand behind the public 'strong-dollar' policy.
Make no doubt about it, this is a race to the bottom in regard to currency valuations, and make no mistake that the Federal Reserve will have to fight tooth and nail every day that it attempts to get the Usd lower in value. Trench warfare will now ensue after the G20 meeting at the weekend failed to address the unbalanced view that it is just fine to print the Usd lower, but that other countries can be charged with currency manipulation when protecting their exposure to a collapsing Usd value.
It just gets curiouser and curiouser; one lump or two, in your cup of tea, Mad Hatter? The White Rabbits' pocket watch is ticking down to November 3rd, with two doors and two medicine bottle to then choose.
Bank early, bank often, be prepared to sell the previous session currency high, and buy the previous session low on the days that global equities are going sideways. HFT has forced an environment that 'today' is the new 'next week', and 'next month' is now an eternity away that algorithm trade just cannot get a grasp of.
You really could not make this up, and that is why forex traders really do need to get aligned to wherever the algorithms are taking things. Long-term fundamentals will prevail, eventually, but near-term trade really does need to be closely monitored, with a disposition that allows trades to follow the ebbs and flows of regional market opens and closes, rather than follow common-sense.
Common sense? Oh, that is so pre-Y2K, ask the Mad Hatter, and then be prepared to buy the dollar in bucket-loads over the near-term if the FOMC delay, or intimate a delay, in delivering QE II.
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