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The oil markets have closed and allowed the market to test the outer ranges of Monday trade, but have placed themselves deep into overbought territory in equities and commodities, and reveal currency pairs that are deeply also overbought against the Usd. A weaker dollar is just what the Fed and Treasury will be looking for, but the next leg lower may just need to generate stronger volume levels to easily follow through. The Japanese markets will be playing catch-up when they open, after their Monday bank holiday, and that may allow the momentum to build again.
There is divergence on the Usd/Jpy in regard to equity direction, and we can see some hesitancy in cad, swissy, and euro to be able to easily make the next move. If Wall Street equities do not push hard at the close to test the upper range of the day, we may see that well needed pull-back happen between 17:00 EDT and 20:00 EDT. We will signal as soon as things follow through.
The trend on the 4 hour forex charts has not been able to move too far from the reads that set themselves at the end of May. This now requires a pull-back to support, and a new break on the dollar to come with new momentum, it would seem. That pull-back is technically overdue, because of the heavily oversold dollar on most pairs. We will signal the reversal, but until then, will need to reduce the lot size until trend and momentum indicators get back in line. We have seen some heavy reversals from these 4 hour chart areas recently, so take care getting long the majors until the support area that they just broke from is tested.
It looks as though an overbought reversal on the global market drivers may also be due before the next leg higher can easily happen. We are continuing to see the swing change of S&P and German Dax momentum turning Long, however that is only two out of six global drivers reporting that way, with four having a mixed read. That equates to a market that looks ready to move, but just does not quite have the manpower to get the job done, therefore reduce the lot size until we get all in alignment. We will build into the Usd selling if these all go long this week.
The equity markets are still dominant, and showing right now an ability to lead Usd valuations around. When we overlay the May through July S&P 500 charts over one another we see an inverse correlation in price moves. That will not change until global growth is reported in GDP reads, and that looks to be at least one, and possibly two, quarters away. Therefore we have to keep an eye on the near-term set-ups that can lead us into longer-term plays, and maintain the thought process that banks 70% at 20-30 pips, and lets a smaller amount go for a run. We will be able to reverse that later in the year, but right now the Trade Plans and Signals will stay geared to banking as we go, at least until the trend and momentum reads get aligned on the 4 hour chart reads