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Bi-Annual Week for Window Dressing and Position Squaring Add to Markets Volatility

Years ago, as a novice trader in the Kansas City wheat futures pit, I can still remember my frustration, when my boss in New York would call and instruct me to 'bid the market up but don't buy much.'   Before I could get clarification he would be gone.  Those instructions, of course, meant he either wanted a high closing price, because he was making a sale of wheat in the global market, or it was the day for pricing the company long wheat position.  At other times I would get instructions to try to  run the market down, but don 't sell very much.  Naturally there were other companies and traders with the opposite positions, and these orders always led to conflict.

Running markets up or down at the end of an accounting period, window dressing and position squaring have always been around.  After all, if part of your compensation as a trader or fund manager, depends on your mark to market profits at the quarters end, why not run the market in the direction of your position.  Or if your pay is based on closed trades only, then the end of an accounting period is one of increased liquidating activity.

Today, in the equity markets, a popular reason for the rally is the results from Greece.   Their parliament has passed a new austerity scheme.  This belt tightening for the masses will enable the government to graciously accept the next donation, about €12B,  from the ECB so they can remain solvent for a month or so.  This combined with the end of  first half window dressing has given us a sharp rally.  Unless there is some really hot news overnight, lower markets tomorrow might be expected.

Looking at activity in the currency market pairs, the A$ has moved smartly higher versus the USD.  Part may be the global rally in equities which carried the S & P ASX 200 1.73%, and the Shanghai Composite Index 1.23% higher in the last session.  There may also be some window dressing involved in the Aussie.  According to the last COT report, the large specs were massive longs in the A$, 67,059 contracts versus shorts of only 12,532 contracts.  Yesterday in the futures market, the OI was up 10,146 contracts, a 10% increase in the OI in one day, so there is fresh buying in the A$.

The rally this week is from a low around 1.04 to 1.0750.  There appears to be horizontal resistance in the 1.0750 area, and this is also near to the top of the BB.  It looks like it is an area to try the short side, with an objective for a retreat to around the 1.06 handle.

There is also interesting activity in the Swiss Franc.  The Swissie has been a very popular haven for safety seeking traders, as the Greek tragedy continues.  Speculators also flocked the the futures market.  Last week the COT report showed the large and small specs long was 91.6% of the total market.  The weakness in the SF versus the euro, and to a lesser extent the USD suggests there is some profit taking going on in the SF today.

Looking at the EURCHF, there has been a lengthy sell off from April 6th when the euro traded at 1.3440, selling off to almost 1.17 this week.  Today, the euro has broken  the  trend line which goes back to April, to the upside.  Because of the exceptionally strong franc, tourist are boycotting Switzerland, the Swiss are going to the euro zone to shop and Swiss businesses are investing in places other than Switzerland. 

If the Greek news remains benign, we may have a set up for a euro versus the SF.  The 1.2150 looks like an interesting entry point.  Note the cross over in the MACD.  The upper red trend line is from the weekly chart, a possible long term objective.  As always manage your money.

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Bi-Annual Week for Window Dressing and Position Squaring Add to Markets VolatilityBi-Annual Week for Window Dressing and Position Squaring Add to Markets Volatility

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.