Trade Desk Thoughts: Forex Trader Release Valve Week

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 Trade Desk Thoughts:



Forex Trader Release Valve Week

The upcoming trading week is likely to resolve the one issue that has impeded markets over the last three months, and although allowed equity markets the chance to push to 2009 highs, has not allowed forex pairs to make the major leg through 78.00 on the dollar index and easily hold. 

In the inter-connected global market, the push-me-pull-you affect of low volume, automated, 30 minute moves has left currency pairs looking for fair value on risk. As covered in The Four Letter R-Word article, the ability to value risk in commodity and currency trade is all-important, and the phase of the global business cycle determines how easily the flow of orders take out major price point valuations.

Forex traders have gone through the three months stage of trading a 90-95% correlation between the Usd and S&P futures direction, something that has been helped by the fact that the global business cycle is transitioning from Trough into Expansion. In this next cycle traders will be looking for the Usd/S&P to weaken in percentage terms, and the fair value focus on the Usd to get back to forward growth and interest rate differentials.

The upcoming week is packed with red flag economic releases that will grab attention of all global market participants, and will allow a test of the three month old channel ranges that have contained forex flows. There are five or six times a year that forex valuations get revamped, and the market moves as one to adjust fair value on the dollar.

There are many reasons to think that right now, in the midst of a channeling, low momentum, high volatility trading pattern, that the market may be about to reveal a swing change in currency valuations, and if so it will very likely be because of the economic calendar releases.

“We have been through the minutia over the last three months, tracking global S&P futures moves” said TheLFB Trade Team. “and right now are looking ahead to a week that may allow far more pending orders to be placed, and increase the runs that currency pairs make, from the two or three 30 minute breaks per day, to a steady range of movement that holds through on global session to another” they said.

“The regional commercial markets opening have created an increase in volume each day, but have tended to house all of the momentum, and the subsequent flow of orders has been weak. We have monitored the moves in our Free Daily Forex Newsletterand noticed that if forex traders are not in place to catch the Japanese, German, and Chicago futures market opens, around 20:00 EDT, 02:00 EDT, and 07:00 EDT regionally, they will sit around waiting for the momentum train that just cannot manage to leave the station,” the Trade Team added.

It seems as though the economic reads this week will draw in momentum and order flows, and it will be very interesting to monitor the equity correlation to forex, and to see whether the global central banking and sovereign wealth fund system are prepared to re-value the dollar index under 78.00. The last times that 75.00 and 72.00 areas were hit there was a reaction, although somewhat weaker than the motivation to get things lower that sent the dollar higher.

The drop from 78.00 to 75.00 is more than enough to break the channel ranges on the major pairs, and if supported by increasing volume levels, and commodity markets that hold 70.00 on oil, and 940 on gold, may not be seen again, at least until the Federal Reserve put into place the 0.25% drip-fed interest rate increasing that will attempt to keep the dollar valuations contained, and to balance the inflation/debt ratios. TheLFB Trade Team will update as the week unfolds via the free daily forex newsletter.