The markets on Wednesday have put in a strange phase of forex trade and are not in sync with the equity market optimism that has sent Wall Street dramatically higher in morning trade. The moves that have the dollar holding ground on a day of fundamentals, that would generally have seen it getting sold, may be attributable to the Treasury markets absorbing the impact of the Federal Reserve’s open market operations. The result has seen the yen tread water, the euro and swissy lose ground, and aussie, cad, and cable push near-term resistance; none of which have the momentum to actually break through and hold.

The euro may be holding things back in regard to ease of the market being able to break the dollar lower, and that may be due to positioning ahead of the ECB rate decision due on Thursday said Trade Team members, The expectation is for a 50 basis point cut in rates, something that built dramatically over the last week in response to jawboning from ECB officials who have reversed completely their public outlook on rates not moving after their March meeting. The euro makes up 60% of the dollar index and as such the short positions being built into on Eur/Usd may be impeding the other pairs ability to break near-term resistance.

It is unusual to see triple digit Dow Jones gains and not to see a reaction in forex valuations, but today the push-me pull-you moves in the equity/Treasury/euro markets have contained things. Market participants may now be looking for break-outs of the daily ranges as the Nymex oil markets close at 14:30 EDT, and also looking for price action in the Asian markets overnight.

The Australian Trade Balance numbers are released overnight, and that sets up Thursday’s U.K. House Price Index, the start of the G20 meeting, and then the 07:45 EDT ECB rate decision the Trade Team said. Friday gets wrapped up in the Non-farm payroll circus that is coming to town, with ring-master Mr. Bernanke speaking to the masses soon after. Things may get to trend after the upcoming week of data, and the signals are there that the status quo may not last too much longer, and with the Fed’s determination to de-value the Usd it may be that the dollar index tests support at the 80.00 area.

A dollar index move to support would equate to an average of 400 pips of gains on each of the major pairs, something that right now looks unlikely to easily happen; but we have to always respect the market’s ability to move at the most unlikely and unexpected of times. We have been banking short-term moves so as not to get caught on the bigger break-out that looks as though is not whether it comes, just when. Nobody really needs to get in front of the Fed at this point in time, not when they have all guns blazing.

Price Points: Cable Long 1.4450. Euro Long 1.3250, or Short 1.3190. Swissy Long 1.1520, or Short 1.1450. Aussie Long from 0.6970. We have no bias on cad or yen at the moment.