CIT Collateral Moves: The Usd weakness that we have been looking for hit overnight, in direct response to the tentative news that the CIT bank rescue may be able to be structured with bondholder approval. The two moves were as the Hong Kong markets opened, and then as the European futures market got underway. This was the first wave to come through, and came while the Japanese markets were closed, and with every global market driver deep in overbought territory. This needs to pull back to support, and traders can buy into it from there, knowing where it just came from.
The overnight moves also pushed the global markets to their 4 hour chart outside ranges, and to areas that have created reversals from previously. There is no doubt that this move can take the next leg lower on the dollar; it just needs to take some steam off, hit support, and get bought then. We will be signaling all week on the entries, now that we have seen this set-up, and will be looking for some sustained moves to hold longer-term than the last few months have allowed.
TheLFB updates have worked their way through, and monitored the moves overnight, and have warned about a reversal that has yet to come. That sometimes is the way that things go, but far better to trade the reversal to support, knowing where the price action points are, than it is to buy into the highs of each session that then force trades to be monitored for further momentum to hit. We are looking at a swissy long reversal, that has been the weakest major pair overnight, and cad and aussie to now really get aligned and correlated to oil market moves over the coming weeks and months.
Not Usd Weakness: This is not a U.S. weakness against a regional global strength play, on the forex valuations. This more confirmation of the direct link that has held forex pairs since the credit crisis hit in September 2007; it is the risk valuation play. Long gone are the days of valuing currency on interest rate differential and forward growth forecasts. We are in the 'valuation by fear' stage of the global business cycle, and right now the link is; equity futures higher = Usd lower, and vice versa, across all major currencies. That link will play out every 8 hours as the three main global markets open and close, and will continue the tango until a global region separates itself from the others with unexpected, and positive GDP releases.
Starting To Build: It looks as though an overbought reversal on the global market drivers may be due before the next leg higher can easily happen. We are continuing to see the swing change of S&P momentum turning Long, and two out of six global drivers are now long. However, four have 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.
Major Consolidation: The break higher overnight has still not managed to change the 4 hour trend outlook on the major pairs. The reads are the same as were formed at the end of May, and with overbought reads on the majors it may be that a reversal to support that subsequently breaks hard back through these areas is the only way that the trend indicators will easily change. Reduce the lot size just a little, until these are showing a uniform trend read.
Just to confirm; the trend reads on equities, oil, and major pairs, is still running flat overall on the 4 hour charts, there is still some work to do to get them into long mode. They are all overbought in the near-term as well, which is fine, they can hold overbought for long periods of time. Mixed trend, and overbought, may just need a quick reversal, find support, and create a far stronger move to then be a part of, that will likely draw in far stronger momentum reads to take the next leg against the Usd with.
The U.S. markets will have one eye on Mr Bernanke's testimony on Tuesday, for signs that the Fed will allow the dollar a run lower. They really do need it lower to aid the economic recovery, but have to jawbone a 'Strong Dollar' policy for the sake of overseas investors in U.S. debt.