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Potential Dollar Tipping Point

The dollar index maintains its 11 day move lower, continuing the trading pattern that has one or two one-hour chart periods of trade that house most of the futures market momentum on any given day. The index is trading around 77.00; an area that moves higher were seen that tested 82.00 over the course of the last four months. The technical pattern of bouncing off support at this area will now be tested by the fact that global fundamentals for buying, selling, or holding, the dollar are forming and then unwinding very quickly on any given day.

Fundamental outlooks will drive direction on the dollar, while technical reviews will determine tipping and reversal points. At this point in time the fundamental picture is one that has the dollar dropping lower, while global equity markets are bought, in-line with global commodity markets moving higher as a hedge against the Permanent Market Operations (POMO) that are in place each day that the Federal Reserve re-buys Treasuries from its primary dealers.

There is a clear signal on US dollar trade that the amount of liquidity and increases in dollar money supply numbers are allowing a re-valuation of the buck at the expense of synthetic inflationary pressures, which are directly correlated to long moves in hard and soft commodities. Exporting nations that use the greenback as a reserve currency will now be looking at ways that regional currency values can be trimmed, and the dollar value raised.

The Federal Reserve may have opened a Pandora's box in regard to POMO, with the end result obviously now not as clear-cut as may have been thought when quantitative easing was introduced by Mr. Bernake at the Jackson Hole meetings in the summer of 2010. A consequence of revaluing the dollar is seen in global inflationary pressures, that are not being backed with generic global growth to the same degree. One thing to continue to note is that the dollar index has nearly 10% to drop in value before it matches the inverse correlated moves that have seen equity markets push to yearly highs. That signals global market participants are not willing to allow the Federal Reserve carte blanche to make moves on the dollar without some form of resistance.

Currency trading patterns have become sporadic, with most movement happening on the major pairs as each of the three regional markets open in Asia, Europe, and the US. Trading patterns are showing that once the one-hour chart’s daily moves have been completed, there is very little left in the way of price action until the next regional market opens.