The global equity markets followed the U.S. President’s lead it seemed in reacting to the building anticipation from the upcoming U.S. bank stress test results, and in reaction to the fear that Q1 2009 earnings will not be any different from Q4 2008. “The noise has been deafening overnight” Trade Team members said. “It looks as though a warning from the U.S. administration over bank test results has sent the U.S. Treasury plans into chaos; the dollar has strengthened, something that the FOMC members had been working hard on jawboning and then acting upon, to get the dollar lower”.

The real test may be seen once the European markets close at 11:00 EDT, and then after the NYMEX close at 14:30 EDT, when traders will see the motivation for the markets to push the S&P lower, through major support. The overnight Asian and European markets were dramatically light on volume, and that may allow a reversal of the tests of support to happen quicker than may otherwise be the case.

“The daily charts on the major forex pairs are all trading around important price points, and they will be areas that need a lot more volume that we are seeing at the moment” TheLFB team said. “It would not be surprising to see an intra-day oversold rebound to get the pairs back towards the SMA areas. They include 1.3000 on euro, 98.90 on yen, 1.2300 on cad, 0.7090 on aussie, and holding 1.4550 and testing 1.4650 on cable. It all depends on the commitment of equity markets to hold the S&P around 835, which if does hold may just allow these to bounce”.

“Breaking 830 on the S&P in trade on Monday, and holding overnight, will send the dollar index on a break of major upside resistance at 87.00, and that will force the re-alignment of dollar valuations. These are huge price points, for many reasons, but the holders of U.S. debt may not want to see the dollar run too far in the current economic climate, and that may be what stems the flow of Usd buying this week” The Trade Team said.

Dollar Index: TheLFB Members Chart

Chart trend: Long
Main price points: 85.33 and 87.00
Looking for: Blue wave C) of Y)

Prices on the Dollar Index chart are very bullish at the moment, with the market searching for the top in black wave iii) at 87.00. Once this hits it's mark the traders should be looking for a wave iv) retracement where the prices must not overlap the wave i) area, otherwise the wave count will be invalidated. The critical area of this wave count is shown at 85.33. The Stochastic is also signaling for a possible pull-back in the near-future after the cross in the over-bought area.