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Global Market Currency Re-alignment

Individual currency trade has lagged behind global market momentum which has seen an Easter bank holiday weekend that has managed to push precious metal and commodity markets higher. At the same time there has been consolidation in global equity trade, with the dollar index holding above major technical support at 74.00.

Major currency pairs are showing US dollar weakness and starting to get aligned with S&P 500 futures trade which in the near-term is repairing the historical inverse correlation that has the dollar index moving in the opposite direction to equity trade.

The signal to get short the dollar index from 75.40 that hit a target of 74.50 has now completed its short cycle, and traders will now be waiting for a new signal to form. As noted in recent client notes, the dollar index is doing well to hold support at a time when global commodity markets are testing $50 an ounce on silver, $1520 an ounce on gold, and $113 a barrel on crude oil.

The battle to re-value individual regional currencies, and the trench warfare insuring between central banks, has allowed near-term currency charts to become very reactive to price movement at the beginning and end of each of the three main major market open and closes. 20:00, 02:00, and 10:00 ET are now the three times that new momentum signals are likely to form on forex and futures contract trade.

The choppy and overlapping near-term currency charts may have an opportunity to break a range on the Monday US trading session, as automated algorithm trade takes advantage of a bank holiday across central Europe. Forex traders should however be banking and early and often with anything taken on Monday, and looking for mid-term charts confirmation that global market momentum is going to be strong enough to take the dollar index down to test record lows around 72.00.

Overnight global commodity trade has confirmed that the move into precious metals, as a replacement for the manipulation being undertaken in the value of the US dollar as the global currency reserve, shows little sign of weakening. It is obvious that there is no direct currency equivalent to the US dollar as a free-floating reserve asset class, that can be held to balance regional money supplies, but there is however massive momentum into the move towards the basket of precious metals that looks to be creating the new generation global reserve asset class.

The signal to get long silver bullion, which came around 13th April with a break of 41.00 has hit the two upside targets of 43.50 and 45.50. Now that the front month futures contract has come within 20c of hitting $50 an ounce the near-term signals are for a pull-back to support at 47.50, at which point the pattern of recent trade that buys any dips can be analyzed. Now is not the time to be looking to create a new long-silver bullion position; patience needs to be exercised as the next cycle of trade unfolds.

Gold bullion trade continues its upwards momentum, and built on the mid-April signal that broke long through 1465, which has now completed the two upside targets of 1480 and 1495. The moves towards $1520 an ounce may need to see a technical reversal that tests bids at 1500 support before being able to easily break higher. It would seem that if gold bullion trade pulls back to support that there are plenty of buyers waiting in the wings to buy the dip.

The reversals in gold bullion trade do seem to be heavier than the equivalent silver trading patterns, but there is no doubt about the strength of the recent move higher that followed consolidation around 1450 in early April. Most traders will not have seen a bullion market that is as relentless in its ability to break, consolidate, and continue the moves higher, than has been witnessed since the implementation of the November 2010 test Federal Reserve quantitative easing program.

Crude oil trade has been on a near-term roller coaster ride that has seen West Texas Intermediate trade test $115 an barrel in early April, test $105 in mid-April, and now looks to be finishing the month with fair value being found around $112 a barrel. The signal produced on 20th April to get long WTI from 108.50 has completed its initial targets at 110.50, with a small balance now left that is trailing the moves in WTI. New signals on crude oil will not be generated unless there is a reversal back to test 111.50 support, which at that time will reveal the strength of momentum in what have been choppy and overlapping near-term technical charts.

Global equity markets have shown 18 sessions of Japanese Nikkei trade that have been unable to break a range above 9850, or below 9350, with fair value now being found around 9650. The impact of the tragic earthquake in March is still being absorbed in regional equity values.

As first quarter 2011 earnings season results unfold, the German DAX has moved higher from the long signal issued at 7135 which hit its initial targets at 7215. Overnight tests of resistance at 7350 have revealed a market that is more than willing to push higher on dramatically light volume, with the real question being whether the April sideways chop that had resistance at 7260 will now be strong enough as a price point to pull the German DAX back to support before further sustainable upside moves can be made.

The S&P 500 forward futures contract that generated a signal long from 1307 which targeted 1321, is now trading around 1335, and back into the early April price channel that sits just below yearly highs. Unlike the European equity markets that have pushed through near-term resistance on their way back to test the high of 2011, the US equity market is already close to the high water mark. It is obvious that low participation and dominance by high-frequency algorithms trade, is not enough of an impediment to stop equities moving higher on the days of positive sound-bite news headlines. There are no new signals forming, either way, on the global equity indices futures contracts.

Connecting the dots of global market momentum, and understanding the subsequent price-action nuances that connect foreign exchange, futures contracts, interest rate, and risk markets, has been challenging since the inception of central-bank quantitative easing programs over the last three years. However, it would seem that 2011 will be the year the breaks nearly 4 decades of US dollar dominance as the accepted global reserve, and will be the year that sets new ground rules for those trading the consequence of movement into a new global reserve.

Market updates, trade signals, and momentum alerts will be issued to clients as price action unfolds across the forex and futures markets, with TheLFB daily global video charting reviews offering a visual aspect on the impact of global trade.