The selling of equities ahead of options expiry, both monthly and quarterly, on Friday, has held the major currencies in a Usd range. It is a pattern of dollar buying and selling that has allowed only brief glimmers of hope that a trend can be set, either way, but nothing is able to set itself overall.

The Average Trading range on the majors is increasing, and indicating that there is a lot of speculative interest building in the currency market. It also indicates that the speculative money is coming from another market, possibly equities, and is building cause and effect for the next set of positive equity trading days that are bound to cycle through soon. Whenever we see a positive run of stock buying the Usd may get buried under sell orders that reverse near-term long-dollar positions, as well as drawing in new money that will move out of Bonds and into Stocks.

The respite in the Treasury yield going higher, (it has dropped back as a result of equity buying), will be a welcome relief for market participants worried about inflationary pressures, but we really do have to be very much aware that the Treasury market may hold the key to dollar direction as we go into earnings season in two weeks:

 -The build up in interest rates from explosive Treasury Market note selling
created a bubble that those concerned with inflation were monitoring.
 -The end result was a collapse in equity values.

The year above was 1987, and the equity demise came in October, after a dramatic rise in yields and interest rates.

The chart on the left is a mirror image of Treasury yields right now; hopefully the Fed will address the inflationary situation that comes from Quantative Easing (QE) before the market decides to.

The dollar will get stronger, another thing that the Fed will not really want to deal with in a time of stagnant/negative growth, if equities repeat the chart on the right.