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Trade Desk Thoughts: 

The yen, swissy, euro, and aussie are at their opening prices, with the dollar gaining on the pound, and losing to the cad. As yet, there has only been one pair that has reacted to the surge higher in global equity trade, Usd/Cad, and that is ahead of the 09:00 EDT interest rate decision which created a coin-flick as to whatever way it would break. The momentum reads are mainly in neutral mode, ahead of the Canadian rate decision, and Mr Bernanke's testimony.

The forex major pairs are in a mixed trend mode, and until the top of the 4 hour chart channels get broken, reversed and tested as support, and then move higher, the trend will remain that way. The moves since May 21 09 have been to eventually get to the outer channel ranges and then fail to garner enough momentum and speculative interest to easily follow through; right now the neutral reads on the momentum flows, and mixed trends, are not suggesting the next leg higher will be easy.

We have to keep in mind that the initial break higher against the dollar was squeezed in at a time that Japanese markets were closed, and when liquidity was thin. To make the next leg higher really will need to be done in a full market, with all dollar index components moving as one.

The global market drivers are in mixed trend mode as well, with some long, some mixed, and one short, added to that is the fact that most are overbought in the near-term. This is not as clear-cut a picture as some may expect, and there are market-wide questions as to why, on a day that equity trade is up so heavily, and oil and gold are holding higher with ease, why the major pairs cannot add to their 'thin-liquidity' break on the dollar from Monday. Maybe the Canadian interest rate decision, and Mr Bernanke will solve that question.

As reported last week, the earnings season is setting August up to be a month that historically is in the top three of the whole year, with a 80% chance of showing positive trade for the month. The reason is the positioning of earnings season in July, that runs into August, that covers the easiest period in which to hit expected numbers. The first quarter releases manage to soften expectancy, and whether the second quarter numbers are good, or just better than the down-graded outlook, is irrelevant by the time August rolls around. The market has by then traded in the low volume vacation doldrums, looking for a reason to move, and earnings normally release a valve.

Mutual Funds have a year end of 31st October, and indicators show that they still are holding a wall of cash that is looking for a home. If so, they will add to the next leg of equity buying that looks destined to hit the exchange floor. This is not a case of wearing rose tinted equity glasses and jumping in; most participants fully understand that 950 on the S&P, and 8,850 on the Dow Jones, are a long way from where most would prefer them to be, and a long way from the 1,200 and 12,500, respectively, that were traded in August of 2008.

We do expect the majors to break higher against the dollar, but it may need an active cash market in the U.S. to be able to do so. Futures trade has done well to hold valuations, now the cash buyers need to back it, or reject it.