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Futures Trade Desk- The Long and Short of USD Trade

Trade Desk Client Note

Global Futures Market Review

The Long and Short of USD Trade

Low liquidity, increased market noise, a US Holiday, and inverted yields are allowing equity indices to hold support as interest rate markets implode. Traders are witnessing a coiled spring being wound to extremes in regard to internal market mechanics. Stand clear; Cash is King right now. Taking an eye off these European closing moves is dangerous: 20 SP 500 Points, $30 on Gold, $3 on Oil, 150 DAX points, added in 60 minutes. As the current situation unfolds the main players will be looking hard at USD valuations.

Trend: Mixed Momentum: Average Sentiment: Average Average Daily Trading Range: Average $0.87 (1.1%)

Daily Simple Moving Average Lines: Blue (20 SMA) Green (50 SMA) Orange (100 SMA) Red (200 SMA)

Technical Wave: Completed a three-wave ABC Up structure with a reversal off 74.90 support that moved to 79.90  resistance in three choppy and overlapping momentum waves. The A-leg was put in place from 74.90 to 77.90, the B-leg found support at 76.50, and the C-leg targeted the 79.50 area. The larger time-frame charts are consolidating heavily, in a strong downwards trend that is creating the above near-term tests of resistance. 

TheLFB DXY 4-Hour Chart

TheLFB DXY 4-Hour Chart

Buy Support: Bullish traders will be looking to buy the expected short reversals to the 78.00 swing point area from September, and the 50-day SMA. The subsequent moves higher could then target target 78.90 and potentially 79.90 if global equity markets then move lower going into the new year.

Sell Resistance: Bearish traders will be looking to sell long tests of resistance that fail to break the 79.90 swing point high area which could then target 78.90 and potentially 77.50 if equity trade finds buyers going into the year-end. Santa rallies in equity trade tend to put near-term pressure on USD valuations. 

Overall: There are so many component parts of what is making up dollar index momentum at this unique period of the global economic business cycle. The appeal of the dollar has very little to do with US fiscal policy or debt outlooks, and a lot to do with the dollar being the global Reserve currency. Add in highly liquid Treasury market trade that is priced in dollar denominations and it becomes clear that the greenback will continue to be held until such time as Europe and Japan clarify their debt conundrums. Only at that point will the dollar come under long-term selling pressure.

This Week: Look to buy-the-dip (again) if equity indices weakness is seen, as attention turns from the on-going EU debt crisis and toward the availability of USD-based lines of credit. Accept that news-headline related moves are dominating technical potential, and that whether or not the US fiscal position is any different from other regions the dollar remains the global Reserve currency.