It has to be remembered that the markets will absorb U.K. and Euro-zone rate decisions on Thursday, with the Bank of Japan rate decision coming overnight, and Canadian and U.S. Non-farm Payroll data on Friday.
Things may remain volatile in the near-term, but it does now look as though November will be a month that gets back into a set trading pattern, with year-end trading patterns the main driver, rather than sound-bite headlines and fiscal anticipation.
Traders now have to connect the forex dots, and examine what triggers will set off the next phase of major pair trade.
Global equity markets have reacted positively to the FOMC adrenaline debt rush, and most bourses are trading higher on the news that Usd liquidity will once again be in play for at least the next eight months, which is something that will back-stop risk and by default pressure the dollar if equity trade holds support.
The main price points of note on the S/P500 are 1175 support and 1225 resistance. Trading within this 50 point range will be no surprise over the last two months of 2010, with a break of 1225 going long instigating a major move lower on the dollar index. Traders will be looking to buy the tests of support ahead of Fed POMO days.
The dollar index is in a trading range that has 72.50 as support and 77.50 as main resistance. This channel ties in with the S/P500 1175-1225 channel, and it is very likely that equity and dollar trade will maintain the very high percentage inverse correlation going forward.
Usd liquidity in the global market will support equity and commodity trade, although it is very questionable as to whether it will directly support generic growth outside of the financial trading arena. The fundamentals do not look strong for anything other than selling tests of resistance on the Usd.
Speculative interest in crude oil has pushed WTI values easily through $80 a barrel, and now has created a $75 to $95 trading channel that will replicate the moves in equities. As stocks get bought, the speculative interest will be getting long crude oil, not out of global growth demand, but out of a need to hedge a falling Usd value.
There seems to be very little in the way of a test of yearly highs, with $90 a barrel of oil not something that the FOMC will want to see transposed into major increases in fuel and energy, which in turn will crimp consumer spending.
Recent consolidation in the gold market has allowed the mid-term charts to form a trend-line that may favor a move to test resistance at 1400 before another leg lower towards 1280 can easily happen.
Improving momentum reads will offset a collapsing average trading range with the vast majority of gold buyers seeming to be in place for the long-haul as a hedge against the U.S. administration’s destruction of Usd valuations
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.