Front-Running Global Trade
Currencies- The inverse Usd/Equity correlation has been weak due to most of the regional markets being closed for a Bank Holiday, which signals that the Usd is not easily going to move lower now that the mainstream media are inflating outlooks for 2011. The real test of Usd strength or weakness will be seen on negative equity trading days where a long-dollar move is most likely, as opposed to a sideways churn when equity trade moves higher.
The one missing component is volume; the last three months of trade have moved on ever-decreasing participation levels which sends warning signals out for the days that equities do sell off. Low volume ramps can easily turn into high volume reversals.
The dollar index was held at swing point 1 resistance in overnight trade with a break above 79.80 likely to target 80.15 in-line with Eur/Usd trading around the 1.3250 swing point support 2 price point if equity trade holds higher. Gbp initially absorbed near-term dollar buying in the overnight session as European equity futures balanced weak order flows, and held support just above the Gbp/Usd swing point 1 at 1.5450. Both Eur and Gbp would have little choice but to break higher and re-take lost overnight ground if S&P 500 futures trade breaks resistance at 1260, which it had been trying to do in the overnight session.
The Usd initially held steady at support against Cad and Aud after both currencies made moves last week that tracked oil higher and the dollar lower. Regional Bank Holiday trading sessions allowed commodity futures markets little chance to break above recent highs, and with low participation levels in pre-Wall Street trade both currencies would give back ground to the buck if WTI oil trade moved lower through 90.00 support, or gain ground if oil held close to 91.50.
Jpy and Chf looked vulnerable to a pull-backs and some dollar buying in the near-term if S&P 500 futures trade breaks overnight resistance at 1260. Traders will be looking for any moves lower in equity trade through 1255 to draw in sellers of Jpy and Chf, with a continued sideways chop if equity markets hold steady. Care has to be taken in low-liquidity times, especially as regional markets open and close, with wide spreads and low-momentum reversals creating potential, but at a more expensive trading price than normal.
Risk Markets- Asian equity trade was very quiet overnight with little follow through as Japanese Nikkei futures trade held at 10200, with Hong Kong futures markets containing the Hang Seng at 23420. European equity futures took full advantage of a closed cash market to reverse the German Dax off last week's 6900 test of support, which in turn allowed S&P 500 futures the chance to move up and test 1260 ahead of a live cash Wall Street session.
Subsequent moves saw S&P 500 futures test 1270 in the cash market while at the same time German Dax trade moved futures contracts lower. Monday trade is all about the one open equity market, with global futures exchanges not yet buying into the U.S. ramp in stock prices.
Commodities- Oil trade pushed WTI futures contracts up to test the 91.95 swing point 1 resistance are, and was able to attract buyers up to 92.80. The move to oil has been more of a hedge against Usd-induced inflation rather than a move to trade global growth, and speculative interest that built once WTI reversed long off 80.00 support in mid-November may soon be tempted to start banking profits if the dollar index holds 79.20 support. WTI has 32.00 and 90.50 as the outer ranges of near-term oil price action, with both price points likely to be tested over the course of the next sessions.
Gold trade settled at resistance at 1418, with 1423 and 1429 the upside targets. Any pull-back on XAU gold futures trade will be to 1413 and then 1407 support. Silver settled at 31.00 resistance, with 31.20 and 31.50 the upside target areas. Any weakness in XAG futures trade will lead to tests of 30.50 and 30.15 support. Soft Commodities held support in weak overnight trade, with fair value being found across most markets.
Newswire- The U.S. reveals ISM Manufacturing numbers on Monday that are expected to show an increase in business activity from last month's 56.6 to 57.0. A print above expected is very likely to move equity trade higher, and by default move the Usd lower as risk is bought and the safety of Usd-based Treasury notes are sold. A miss below 55.0 would move equities lower, and conversely send the dollar higher as Treasury safety is bought.
The week ahead reveals FOMC Minutes, ADP private employment, ISM Services, and Non-farm Payroll numbers from the U.S., any of which is capable of moving prices, and all of which will set the tone for near-term 2011 Usd sentiment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional 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.