Intra-day Noise Dominates Global Trade
Seeking Alpha Analyst Since 2008
Global traded markets have entered into a sideways period of trade, having absorbed what is historically a volatile time that follows the US nonfarm payroll release on the first Friday of each month. The reaction in April has done no more than create a small ripple of movement contained in very tight trading channels. Equities, commodities, and currencies, are all trading at similar levels that they finished at in March.
Anticipation of Q1 earnings season may dominate the near-term outlook, and allow the current trading channels to hold steady. The global equity benchmark, S&P 500 futures, will need to break above 1345, or below 1305, to instigate a response from the global market that would force participants into the trading arena. The first week of April has seen the lowest volume levels since just before the equity market crash in 2008. Without even the high-frequency trading algorithms wanting to participate, price action will remain volatile only on an intraday basis, and will likely reverse as quickly as they break.
Precious metal trade has held gold and silver above near-term support, with both looking very capable of maintaining their buy-the-dip trading patterns. Crude oil trade is also showing very bullish price action, with both WTI and Brent crude both easily holding yearly highs.
The interesting aspect of global commodity trade is that the US dollar has not lost ground at the same percentage rate that commodities have moved higher. There is a disconnect between dollar valuations and global commodity trade, as the need to hedge dollar manipulation by the US administration and Federal Reserve empowers the inter-bank currency wars that are currently bubbling under the surface.
Major currency pairs are also trading in benign fashion, ahead of the week that is loaded with red-flag releases from most regions. Anticipation of an interest rate increase from the European Central Bank on Thursday, coupled with the thought process that leans towards the Bank of England possibly following suit, has created very tight trading channels which replicate the overall global market activity. Eur/Usd breaking 1.4250 going long, or 1.4050 going short is likely to draw in reactionary trades from the wider market, that could then create a sustainable move of 500-600 pips.
The Australian dollar may lose ground in the near-term as the markets absorb the fact that the Reserve Bank of Australia is very unlikely to touch interest rates until the early part of 2012. An inflection point on Aud/Usd will be the next test of support at 1.0250. The Canadian dollar will need to soon support of the market’s anticipation of some kind of tightening measure from the Bank of Canada if the loonie is going to continue its appreciation against the dollar below 0.9600 on Usd/Cad.
The two interest-rate connected currencies, the Japanese yen and Swiss franc, continue to move in disjointed fashion, with both being impacted by the fact that 10-year US Treasury notes are now into the eighth session of sideways crawl, that has note values holding 120.50, with yield values that are pushing inter-bank interest rates ever higher. It would seem that although the Federal Reserve is a long way from being able to raise overnight or discount interest rates, the bond market is prepared to push note values lower, and by default push 10-year yields, and connected interest rates, higher.
In general, traders are witnessing a sloppy, overlapping period of trade that really only has any sustainable price movement when the European futures market opens for trade around 2 AM ET, and then again as Wall Street trade absorbs US economic releases at 8.30 and 10 AM ET. Patience is key at these inflection points, with tenured traders very much aware that cash is also a viable position to hold during certain times of any trading year.
TheLFB trade desk will send signals and alerts on global equity, interest rate, and commodity trade, along with intra-day updates on the major currency pairs. Bank early, bank often, and be prepared to sit and wait rather than be too reactive to intraday noise.
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