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There have been questions in the market as to why we are not seeing the moves that may be expected to be happening in the forex arena and on the major pairs. It is because we now have a new 'Normal', and it is something created from a swing point on dollar valuations. This period of trade has muted any follow through in May as the market aligns itself in anticipation of maybe 18 months of short-dollar trading to come.
In this period, we are seeing the market move into a risk tolerance mode, slowly but surely, and in this period of change we see equities move higher and subsequently the dollar get sold. However, on the days that is reversed and equities get sold, the dollar is not getting bought to the same degree.
Therefore, the market draws in volatility on short equity days, and we have to expect some quick reversals on anything that gets picked up as the new 'Normal' fights the long-dollar moves. Pending order trades run the risk on short-equity days of getting hit, and then reversing, more than on the days that stocks get bought.
Patience is key right now, the move is coming, this is the distribution phase of the next global business cycle, but it needs positive equities to launch itself. TeamLFB members said. This is not a question of if the dollar can lose ground, just a question of when.
For nearly eighteen months, the global commodity, equity and forex markets have been marching to the tune played by S&P futures trade; wherever equities moved, the Usd moved in the opposite direction. It has been well reported why, and most traders understand that the global markets went so far into risk aversion mode that they ended up empowering the currency that backed the economy that started the negative ball rolling in the first place.
The lack of market-wide liquidity forced the selling of equities, commodities, and options, and forced the buying of bonds, and specifically the mass purchase of U.S. Treasury notes. That move created a short equity/long dollar trade that has lasted through the credit crisis.
We are seeing a swing change in the depth and breadth of the equity selling at the moment, and also in the depth of Usd buying in reaction to those days that stock values drop. No longer are we seeing the mass panic buying of the greenback, and we are also not seeing Treasury note values able to hold this year’s higher ground. How is that important to forex?
U.S. Treasuries have now gone through a seven week run of declines that have not been mirrored in Usd valuations or equities, and it seems that it is only a matter of time that the market aligns itself with a dollar index value below 80.00. Lower Treasury note values will push the dollar index down, and that is likely to happen as a consequence of strong equity trade.
The signals are here that the Usd has maxed out its appeal as the ‘safe haven’ play, and unless the S&P gets below 750 it seems that this is how it is going to be. However, the only real break in May so far that has impacted the whole forex market was in the late afternoon 90 minutes of trade as the U.S. markets closed the first week of the month, on the day of Non-farm Payrolls.
Since that move, outside of the yen, we have seen very little sustainable moves, and that is fine; the cause and effect is building, and it will be explosive when it breaks. Any dollar buying seems to be on very light volume, and is really only getting any momentum in U.S. based trade.
In May, the Gbp/Usd pair had three moves to note; two 30 minutes candles on the 11th. Three 30 minute candles on the 12th and one 30 minute candle on the 13th.
Eur/Usd has opened and closed every session somewhere near to the previous day’s prices.
Aud/Usd has one period of trade on the 13th that may have broken, but now sits back at last Friday’s closing price.
Usd/Cad had two sustained periods that could have caught bids, but both reversed.
Usd/Chf literally had no moves worthy to note in May, literally, and is back to last Friday’s numbers.
Usd/Jpy initially got caught on the 20, 50 and 200 day SMA areas, and is the only pair that has moved in value against the dollar and held, with most of the moves coming in the low volume time, low momentum U.S. sessions.
A fairly frustrating period of trade may be in place for those looking for sustainable breaks every day, but this is a time that more than ever reveals the need to be in the pairs as they break, because that may pay large dividends TeamLFB said. The cost of catching the bulk of the next ride will be paid from being in the tests of resistance that come in Asian and European trade, with an understanding that by the time the U.S. session rolls around there will likely be a need to lock some profit in.