Trade Desk Client Note
Global Futures Market Review
Selling The Dollar? Take Care!
The selling of equities and buying of Treasuries ahead of year-end momentum building has held the major currencies in a Usd-buying pattern, and contained commodity market movement. The 2011 pattern of trade has allowed only brief glimmers of hope that a trend can be set, either long or short, that can last for more than a session or two without being completely reversed.
The Average Trading Range (NYSE:ATR) on the major currencies is increasing, in-line with some savage increases in global asset class intra-day volatility, which indicates that finding fair value and balancing risk is a daily not monthly occurrence while debt issues are addressed. It also indicates that cause and effect for the next set of positive equity trading days are dependent on secondary market action as much as direct equity buying.
The near-term respite in the Treasury yield going higher, which has seen 10-year note values consolidate around 131.00 resistance, should have allowed equity markets to find buyers. However, the economic landscape and weak overall earnings outlooks for 2012 has seen equity indices testing support rather than resistance.
Treasury and interest rate markets hold the key to equity and US dollar direction. Volume surged higher in Equity Indices trade this week, as S&P 500 trade looks likely to test 1175 support if 10-year Treasury values pass 131.20. As things stand, 10-year US Treasuries are not signalling that equity and currency trade will be able to easily make a break in either direction and hold, and favors the selling of stocks and buying of the dollar if 131.20 is taken out on ZNZ1 10-year Futures contract trade.
The chart on the left shows an increase in Treasury note buying creating a bubble that those concerned with inflationary manipulation were monitoring. The end result was a collapse in equity values, as seen in the chart on the right.
The year above was 1987, and the equity demise came in the last quarter. Sound familiar?
The chart on the left is a mirror image of Treasury yields right now. Hopefully the Federal Reserve will address the inflationary situation that comes from un-tested Quantitative Easing programs before the market decides to.
The dollar will get stronger if equities repeat the chart on the right, which is another thing that the Fed will not want to deal with in a time of stagnant/negative growth. Although potentially flawed, the USD is certainly an integral part of global market direction each day, and as 2011 completes the greenback is easily holding major support.