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Major Outlook: Watch cad for a reaction long ahead of the BOC rate decision. Monitor cable for a possible continuation of Friday's weakness. Look to euro to follow the oil market moves higher, if crude traders push things higher to test $65.00 a barrel.
The Japanese markets are closed for a bank holiday on Monday, and the order flows may therefore be affected at the open. The global markets reacted well to the Intel earnings report early last week, and after the initial reaction went on to hold a steady course. We will now look for the new momentum that comes from this week's releases, both calendar and earnings. Canada dominates the early part of the week with the BOC rate decision.
We will update as things start to move, being fully aware that we now have three out of six global market momentum drivers in long mode, three in a mixed mode, and none in short mode. It was only one week ago that we monitored a market that had five of six going short. The turn-around came off the earnings news, and interestingly that has not as yet been reflected in the major forex pairs. Until it does we will maintain a slightly reduced lot size outlook.
We have four mixed reads and two short-dollar reads on the major currency momentum flows, and as such will be looking for the global market drivers to give forex desks a reason to move off the current fair value reads. As that unfolds we will look to increase exposure a little, still looking to buy support and sell resistance while we remain in the channeling market, and still looking forward to the late July, early August moves that historically are substantial in comparison to what came in June and July.
In bull market environments the, Shwartz Stock Market Handbook says, August has a 80%+ chance of showing strong upside equity gains; the downside is that the months that sellers dominate tend to be 3%+ moves lower. The reason for the 'famine or feast' kind of trade in August is the positioning of earnings season that, by the time August begins, has already absorbed some major player numbers, many of whom have massaged Q2 expectations earlier in the year. Right now, in the situation that we have with companies already loaded expectancy to the downside on these earnings numbers, the Q2 releases may not have to do too much to impress the market.
There is a wall of cash positions that needs an equity home before the October 31st Mutual Fund year-end, and August may just be the month that we see that happen. If equities move higher, the converse move is seen in the dollar index. It has nothing to do with regional overseas strength at this time, the interest rate/growth/debt valuation is on hold until global economic growth is seen; the dollar is getting bought or sold right now in direct line with equity and bonds.
Equities Higher = Commodities Higher = Bonds Lower = Dollar Lower
Equities Lower = Commodities Lower = Bonds Higher = Dollar Higher
The commodity markets held support well last week, as did equity traders, however, that was not transposed to the dollar index in anything other than a quick test of support that garnered little interest in making a sustained break of 80.00. That may not be the same this week if earnings season prints 'as expected' or better; this week could easily be the start of an equity move that draws in cash, and if so, may trigger some large contingency orders.
It looks as though a quick overbought reversal to support may be due on the global market drivers before the next leg higher can easily happen. We are continuing to see the swing change however; S&P momentum just turned Long, three out of six global drivers are now long, and we only have a mixed read on the Japanese Nikkei, and oil right now. Reduce the lot size until we get all in alignment, but expect more of the same Usd selling if these all go long this week.
Either way, long or short, as forex traders we have it covered. These is no need to guess or speculate what may be, right now the momentum reads are not showing a forex commitment either way. The global drivers however are, and right now they are building a long momentum move on the 4 hour charts. Make sure to mute the talking heads if they give nothing actionable after their opinions, because the noise from them is only going to get loader if the equity markets break hard, either way.
There is a new rule book being written in regard to financial market reactions to the global credit crisis, things will be different as the global markets emerge from the last 24 months of chaos. Keep in mind, from a professional trader's point of view, for the masses to guess and pontificate over the next six month and twelve month targets, is laughable. When traders go back to March 17th 2009, the headlines we black, and the 'outlook' from the masses was poor. The great depression was quoted at every turn, however, look at how quickly things moved.
Look now at the headlines and try to correlate the bullishness last week in equity and commodity trade, with the snippets coming out as bullet point blasts; they are out of line, and in reality, in the trading environment that we have, analyst opinions are way behind the curve. Two, well known market forecast genius minds have reversed their thought process recently, from long, to short, back to long now, in the space of four weeks, in their global market outlook. When their ramblings are laid on top of the 4 hour momentum charts we see that they are actually a lagging indicator of global momentum, and as such we will put most on mute, and follow the market flow.
As forex traders we need to be reactive to order flows, that are happening out of reactionary need rather than thought process desire, that allow us to stay on top of the huge wall of market noise that is being generated by the media. The new world order may have a path to walk, and few actually know where that leads, and therefore few can actually know what is ahead.
Therefore, we will stay aligned with global market momentum, and trust our spiders web of movement that has remained a constant throughout five previous global recessions over the last thirty years of trade; a pull on equities creates a converse push on the dollar index. Simple.