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Forex Correlations Still Struggling To Align

The bi-polar decoupling of forex pair direction against the Usd and the decoupling of the inverse Equity/Usd pattern of trade was seen again in overnight trade. While Aud climbed on the outlook from the Reserve Bank of Australia traders saw Cad initially lose ground. Eur gained in value as Gbp struggled to attract bids, and both Jpy and Chf initially lost ground to the Usd.

Eur/Usd has 1.3000 and 1.2900 as the price points of note, while Gbp/Usd consolidates around the pivotal 1.5250 area. Aud/Usd is playing tag with the 20-day SMA (Simple Moving Average) at 0.8650, as Usd/Cad ignores positive oil trade and holds support 1.0480. Usd/Jpy and Usd/Chf are separating from the lock-step moves lower against the dollar and in the near-term have both seen a bounce off support.

In the middle of Q2 earnings reporting it is to be expected that intra-day trade patterns may be volatile and/or sporadic, and recent trade has been no different. S/P equity futures trade has snaked sideways around the 1060 area with absolutely no inclination to break either way with ease, while at the same time Asian equity trade has been hammered lower. European markets are holding support, and look very susceptible to another drop lower unless buyers very quickly show themselves.

The short side of the Usd is favored in the mid-term, with long-term valuations still very much dependant on whether U.S. Treasury auctions can maintain their bubbly look and feel. If overseas buyers of U.S. debt and assets do not increase in the August TIC data reports the long-term outlook may quickly change to a bearish Usd.

The participation levels are very light, with speculative price action coming in sporadic fits and spurts that have been unable to challenge the previous session highs and lows. Forex pairs are running on regional growth-to-debt outlooks, macroeconomic reactions to calendar releases, and on weak sentiment that has seen the 4-hour chart trends hold against the Usd in general, but on low momentum.

In these conditions it is important to bank in stages, to pull the stop loss tighter after the first round of profit taking, and look to be out of 60-70% of the trade ahead of a test of the high/low of the previous session.

Disclosure: None