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Market Wire Update:
Global Markets Diverge
Forex Trader Note: As global trade go into the last two trading weeks of the year the markets have separated in regard to global direction and momentum. Equities are higher, gold and oil are unable to easily hold the long tests, and the dollar looks happy to consolidate at recent highs. This is as mixed a picture as forex traders will see, as fair value on year-end risk is sought.
Volume and momentum reads are very weak, and that can create near-term volatility, but as yet we are not seeing much Usd price action, in either direction. The U.K. and U.S. reads on GDP will be interesting to compare in trade on Tuesday.
The Global Market Driver reads on the 4 hour charts are showing Usd long trends, but importantly, are showing neutral reads on momentum. That tells us that the path of least resistance has been to buy the dollar, although it highlights that sentiment and order flows have weakened.
Less than a net 100 pips of movement was all that last week achieved, in an environment where equity and commodity markets offered the chance for the Usd to easily add to recent gains.
Whatever trade direction is taken it may be beneficial to reduce the lots size and set smaller targets until momentum builds. There has been separation between the major pairs in the strength of their movements, and for the first time since the credit crisis hit home we are seeing diverging dollar index components, with varying percentage moves from each pair.
An overbought dollar will reverse tack at some stage, but as we have seen in recent trade, so long as equities and commodities struggle to move higher the dollar will hold onto recent gains. The Usd/S&P/Oil correlation is not in play in the near-term as strongly as it has been over the last 18 months. Instead we have seen strong reactions to news and economic releases, again, something that has not been in play over the last 18 months.
The move has been to buy the bond and Treasury market, and in general move to Usd denominated Treasuries, when equities and commodities were not moving higher. We will monitor the strength of that link in early trade this week, because added to the low pip count from last week, it strengthens the case to look for some Usd consolidation.
Keep an eye on TheLFB Trade Plans; they are producing pips at a great rate of knots, week in and week out.
Red Flag Economics:
04:30 EST Gbp Current Account Exp -8.1B, Prev -11.4B
04:30 EST Gbp Final GDP Exp -0.1%, Prev -0.3%
08:30 EST Usd Final GDP Exp 2.8%, Prev 2.8%
10:00 EST Usd Existing Home Sales Exp 6.3M Prev 6.1M
Dollar Index: The dollar index went into Neutral mode on 26th Oct and moved tentatively Long in December. The near-term path of least resistance is consolidation around new highs, with long-bounces on weak equity trading days. The weekly close above 76.00 was a signal that buyers are dominating, and signaled the potential in a momentum reversal. Swing Point: 77.00
S&P Futures: The S&P futures market confirmed a Long momentum read on Nov 11th and has built a near-term support base around 1095 and 1085. The 1105 and 1115 area will be a major resistance point to now close above this week. The moves to test and hold support are impressive, and now backed with Japanese and German markets that are also looking bullish. Swing Point: 1095
Crude Oil: There is still a very flat momentum read to crude oil trade that has been in place since 6th Nov. The 72.50 area continues to be a main price point, after sellers were held at bay recently around 69.50. The 75.50 area is the topside number to breach. Holding above 70.00 this week looks set to trigger long orders, and will pressure the dollar index being able to move too much higher without a pull-back to test support. Swing Point: 73.50
Gold Bullion: Gold signaled long on 3rd Nov and started to reverse that mode in December with bouts of profit taking. 1110 is near-term support, backing any further long tests of 1150. Now looking for signals that support is in place. Swing Point: 1095
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Disclosure: No positions