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Trade Desk Thoughts:
Dollar Index Swing Point
The initial long-Usd moves in European trade were reversed as the U.S. GDP numbers printed at 2.2%, lower than expected, but were then added to again as Existing Home Sales came in at 6.5M units, which was above the expected 6.3M read. The last leg of Tuesday trade has then been to once again add to long-Usd positions as European markets close.
The pattern for currency markets is to go sideways in afternoon Wall Street trade, but there are signals in the way that forex pairs have split, that today could be different. Long equities, Long dollar, and Short gold and oil, are not things that pm U.S. trade has dealt with too often, and it will be interesting to see this unfold as the dollar takes another wipe out of the euro, cable, and aussie.
The dollar index is swinging around the 78.00 area, with a close above 78.50 breaking a price point that has been very important to the market in trade this year. A move under 77.50 would allow the major pairs to test the strength of recent Usd buying that as yet really has not been back to test the break-out areas. Any reversal move now looks unlikely to happen on Tuesday. The market is buying dollars as the global commodity markets implode.
We have seen USD/CAD weakness, USD/JPY strength, and a dollar that is dominating European currencies in trade on Tuesday; however it is only as the European markets close that the previous session ranges are being seriously threatened.
Gold trade has tumbled to test support at 1075, in a big drop from the previous session test of 1120, in-line with global equity markets rising as one. Oil markets are also going lower, and taking out 73.00 support.
The major pair price points show that the long-Usd trend is firmly in place, with momentum reads that are indicating that there may be room to move before overbought reads impact trade. However, this latest leg of dollar buying will push near-term time-frames into overbought reads on the dollar.
There has been separation between the major pairs in the strength of their dollar moves, and for the first time since the credit crisis hit home we are seeing consistent divergence in the dollar index components, with varying percentage moves from each pair. The market has also lost the S&P/Usd converse correlation that has dominated for 18 months, and instead is building a Usd/Oil converse link.