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Futures Trade Desk- Risk and Asset Divergance

Daily Client Note

Global Markets Review

Risk and Asset Divergance

Dollar Index
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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. 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.

Dollar Index Correlations:
Daily trading range on DXY is 70 ticks, which is building in strength and indicating institutional interest is more than willing to adjust risk on a daily basis. The 20 and 50-day Simple Moving Averages (NYSE:SMA) on DXY are @ 78.30 and 77.95. DXY price action has a 36-month 75% inverse correlation to crude oil and SP 500 moves, and an 80% inverse correlation to euro (Eur/Usd) currency moves. The USD/S&P near-term inverse correlation is holding strong most days.

S&P 500
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History reveals that the near-term chances for a rally into year-end on equity indices trade is high. The chances are that an oversold rally will be in response to any news sound-bite that houses even just a glimmer of hope the EU debt may be contained. Whether the market can sustain a rally that moves into 2012 is of little importance as attention turns to the daily balancing of risk, rather than the long-term investment potential. Focus is squarely on the near-term S&P 500 valuations and whether values can get into the green for 2011. If US 10-year Treasury values break and hold above 131.50 the chances for an equity rally diminish substantially.

S&P 500 Correlations:
Daily trading range on S&P 500 is 30 points (3.5%), which is above the historical norm and indicating an increase in volatility, in low-volume markets. The S&P 500 100 and 200-day Simple Moving Averages (SMA) are around 1207 and 1260. S&P 500 price action has a 36-month 75% correlation to crude oil moves, and a 90% correlation to the AUD/JPY currency pair.

Bullion
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Look for the pattern of buying-the-dip on Gold (XAU) to continue, and accept that news-headline related moves are dominating technical potential. The trend and outlook is mixed, but many times this year buying opportunities have come from those set-ups. The intra-day trading range is extreme and signals that massive volatility remains a constant threat. The Daily chart SMA areas could offer solid support if tested in the near-term. Increases in Silver (XAG) margin requirements forced bullion markets to reverse lower to test support on each occasion they were announced this year. The main bullion market moves lower have been margin-related, and most dips have been bought. Selling of resistance is likely to be seen if equity markets show strong weakness.

Bullion Correlations:
Daily trading range is $61 (3.5%) on gold and $2.25 (7.2%) on silver, which are above the historical norm, indicating that speculative interest is building and that any dips will likely be bought. The 20-day Simple Moving Average (SMA) on gold is around 1738, the 50-day SMA on silver is around 32.40. Gold bullion is losing its 12-month correlation to silver in the near-term.

Oil
Quick-View:
Look for the pattern of buying-the-dip to continue, and accept that news-headline related moves are dominating technical potential. The trend and outlook is mixed, but many times this year buying opportunities have come from those set-ups. The intra-day trading range is extreme and signals that massive volatility remains a constant threat. WTI looks strong on the days that equity markets push higher on increasing participation levels. Now is not the time to be holding WTI positions for the long term while valuations are pulled from pillar to post in-line with breaking daily news headlines.

WTI Correlations:
WTI has a 36-month 75% correlation to S&P moves, and a 90% correlation to the euro (Eur/Usd) currency pair. Daily trading range on WTI is $3.50 (4.4%), which is above the historical norm and indicating increasing speculative interest, and increased volatility as support and resistance areas are tested. WTI 20-day Simple Moving Average (SMA) is at 97.70.