Australian economics hold the forex market attention as the Tuesday rate decision is absorbed by trade desks who also eye four more rate decisions this week, plus a swath of red-flag economic releases, a mid-term U.S. election, ADP and NFP employment data from the U.S., oh, and the Fed decision on what will constitute their quantitative easing program. No wonder the month of October was used to consolidate September gains, because once definitive answers are in place this week there should be a massive break from range-bound trading.
In October the main driver of daily price action was the Federal Reserve coming to market on average two or three times a week with Permanent Open Market Operations (POMO) that monetize rafts of future debt obligations and in doing so set a pattern of trade that forces equity markets higher.
Since the end of August there have been 20 days that POMO has taken place, and on just those days the S/P rallied 10.5%. In the same time period, 24 days have been traded without POMO, which have produced a 0.9% return. The volatility caused by U.S. sessions being dominated with Fed auctions has become all-consuming, and in doing so has created range-bound October charts, which have massive intra-day volatility.
Not one day on October has been able to break Resistance 1 or Support 1 pivot points and hold on S/P trade, yet, every single day has seen a test of both R1 and S1 areas. The reversals off support and resistance in S/P trade have dominated commodity and forex trade, and really have built a huge amount of cause and effect as the U.S. administration fights to get the Usd lower, while global central bankers wage a currency war that tries to protect their own import/export valuations in both goods and inflation.
|TheLFB S&P 500|
Most currency charts resemble short-wave radio bands, with very little in the way of sustainable breaks that can raise enough momentum to challenge the Fed’s POMO days. And now, after months of speculation, the week that all should become clear has arrived. Recent trade has bought 30-second bursts of energy that test near-term resistance and support areas, and hopefully now this week will finally allow a sustainable break that can hold, build, and break again
Disclosure: TheLFB runs an automated trading program that is constantly one side of the dollar or the other, in-line with the detail posted in the article.