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The last trading days in June look as though they will follow the same pattern as the ones that came before raising concern with momentum, sentiment, and the inability to break a trading channel. That however may be about to change, and a break could be coming either way on the dollar. This is a pivotal week for market wide fair value to be found on equities, commodities, and bonds, which by default will move forex valuations.
There are five or six times a year that forex valuations get revamped, and the market moves 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.
How many times have the big-break opportunities come and gone before a realization that they were even there sinks in? This may be the warning that garners attention; the cause and effect built over June may be about to break, and if so, it will be a big move.
June 30th brings quarter two (Q2) to a close, as well as half the year (H1), and also marks the four month countdown to the Mutual Fund year end on 31st October. It also brings a swath of economics from all regions, that whatever the outcome, long dollar or short dollar, are very likely to create big moves across the commodity, currency, and equity markets.
There are public questions being asked about Treasury market reporting, Usd reserve values, and also financial questions surrounding the bubble-like look of note yields. The last week of the month also brings window dressing; the tidying up of Hedge Fund portfolios to disguise the weak hands that were held over the last period, and that in its self creates volatility.
Window dressing is the least exposed and talked about of the above market mechanics, but may be the one that has the most equity value impact, and equity markets right now are leading global market valuations. The cloak and dagger charade that is getting played out to revalue the trade book and to disguise the previous trading history only benefits just one group; the ones holding and running the book. This volatility may just spill over into a big price action movement when added to the other variables coming down the pipe.
For many reasons, we may be on the cusp of something big; traders may not want to let the last month create a false feeling that things will be hard pushed to change, this could be the easiest break-out of recent times, and one that is a little overdue.
Since the 1971, scrapping the gold standard, and the subsequent expansion in the 1980’s from exchange control being removed by most countries, and electronic trading opening up the markets in the 1990’s, forex trading has always been about covering forward commitments in another currency, and hedging open positions in another market. Additionally, it has also been about buying or selling interest rates than it has been about looking for base appreciation in pair values. All of that may now come sharply back into focus, and that in its self will allow some clean cut separation from the recent channels.
For decades, the link between Forward Growth (GDP) and Inflation (Interest Rates) has dominated forex values, and right now the fact that the only growth coming from the U.S. is based around government spending at debt levels that are literally beyond compare, which places the Usd in a unique place.
It may be that the American currency can more easily depreciate than any other, at a time that all regions would like a low value currency, for one simple reason; historical forex values. Debt-to-Growth out of the U.S. looks appalling, and for whatever reason, and under whatever agenda, the U.S. administration may just want to re-think how easily the masses believe their commitment is to a “strong dollar policy”.
This is definitely not what is in front of the market right now, and it will be intriguing to see this week, if the U.S. economy shows signs of stronger interest rate action ahead of the global market whether the Fed, the Treasury, and the new world order, will buy the greenback.
That is the fundamental review, the technical aspect will easily unfold around us this week, and that all starts with the 4 hour charts breaking the low volume channel ranges, and then holding. We are all over this potential move, either dollar long, or dollar short, and see it as one of those times that we refuse to miss the opportunity. We have ignored the intra-day noise for a week now, preparing for the potential in this fundamental break; so let the Technical Games begin.