TheLFB-Forex.com A Forex Trader Portal
Trade Desk Thoughts:
Four Days Of History
As global trade goes into the final four days of trade in 2010 it looks as though the market has found a near-term top in dollar index trade, and that the major currencies have reversed and held the near-term selling. History says that December and January are strong for equities and weak for the dollar, and although the equity side has held higher it will take a lot to reverse the Usd gains in what is left of December 2009. USD/CAD is the only pair that has hardly moved, the other majors all have at least 500 pips of ground to take back, and not a lot of time to do it.
The Daily charts show the recent move from 74.00 to 78.00 on the dollar index as nothing more than a pull-back in what is a very strong short-Usd trend, with moves that have held major Simple Moving Average areas as well as main Fibonacci price points. It will need a concerted effort by all interested parties to make the next move that testes 80.00 resistance.
The Usd is dealing with current valuation points around 78.00 that were easily accepted as fair value over the course of the credit crisis, and in the very near-term it will take a heavy increase in momentum and sentiment that will be required to break either side of the current price channels.
USD/CAD and USD/CHF lead the moves lower on the dollar in last week's trade, and we will be looking for signs that both pairs can carry that forward in trade this week. AUD/USD and EUR/USD have followed along, and both now look as though they can make up ground stolen by the Usd if equity and commodity markets find buyers.
The long side of USD/JPY will need to absorb record budget measures introduced by a Japanese government that is making good on its pre-election mandate of funneling financial aid through household spending, rather than on infrastructure. Japanese Prime Minister Yukio Hatoyama announced a record budget of 92.3 trillion yen or $1 trillion for the fiscal year that starts April 1, 2010.
Japan's public debt is the largest among industrialized nations and is nearing 200% of gross domestic product, raising concerns on the country's credit ratings that have been heightened after threats of, and downgrades to, sovereign debt recently.
During 24 months of sub-prime and credit-crisis we have watched regional currency trade merge into one, following the tune laid down by the global market as the ultimate risk revaluation process took place. In that time the one thing that dominated daily forex trade was the overall global market tolerance for risk, and in the ensuing environment of Central Banking bailouts to the tune of billions of dollars, a deep correlation was forged that linked the daily S&P movement to a converse Usd play.
Since mid-December we have seen that link deteriorate as the global market prices in global growth, and revalues currencies in anticipation of the expansionary phase of the business cycle. The consequence has been to see the Usd gain momentum in the near-term, (it is still in a heavy down-trend on the Daily charts), as the market looks to forward growth rates (GDP), and interest rate differentials to separate regional currency values.
We will start to see more reaction to regional macroeconomic data, and will also start to see some big-picture set-ups unfold that may take half of 2010 to complete. We are looking for a near-term Usd reversal, but are then looking for a every-man-for-themselves set-up in January and February that will have every day revealing a slightly different Dollar Index story.