www.TheLFB-Forex.com A Forex Trading Portal

The overnight bullish view in Asian and European equities evaporated with the absolute collapse of equity markets, both European cash and Wall Street futures trade, as well as the heavy reversals in gold and oil, after the U.S. Jobless Claims numbers printed at 627k. The number was above both the expected and previous reads. There was a market-wide buzz that the employment number was going to be far better than expected, (for whatever reason was unclear), and this 'failure' to deliver was not built into fair value it seems.

There have been analyst calls that the recession is over/bottomed, that the green shoots are abundant, and all is going to be rosy in the garden very soon. Well, not to rain on anybody else's parade, but there is a bear out there knocking on the equity door. Russia has just dipped into a bear market, and other regions are not too far behind it seems.

The net result is that without equity markets that can hold in the green, or at least easily negate heavy selling days with a subsequent bounce, the currency markets will spin their wheels. The historical move is from stocks to bonds on days that equity fear is rife; but how many more buyers of U.S. Treasury notes there are is going to be questionable if equities do go into another bear cycle.

The Fed is trying to negate the rate at which Treasury notes are increasing their yields (read mortgage, inter-bank, credit card, and overnight, interest rates), at a time that Team Bernanke have a commitment to buy notes printed to save the economy. More notes equate to higher yields, and by default, an increase in the economic interest rate that is set off 10 year Treasury yields. The overnight rate may be at 0.25%, but the real economy is actually dealing in 3.8% (10 year yield) plus premium; +5% interest rates.

If the bear market gets re-set it will be hard to see the same amount of Used appreciation that happened in the last cycle; reason may be that overseas buyers, and the Federal Reserve, are bloated with dollar bills and notes. That gives us more reason to think that a sideways. channeling period of trade may be at hand, with fair value on stocks, oil, gold, and currency being hard fought each and every session.

It is crystal clear that the dollar is getting bought on volume only the days that a hedge against falling equity markets is required, and also very clear that given half a chance trade desks are liquidating near-term dollar trades whenever equity futures move higher. It may be that no global region is in a much better current economic situation right now, but going forward there are few major currency economies that will carry a Debt-to-Growth ratio that comes anywhere near the U.S. and as such it may well be that global growth comes from outside of the U.S. first.

Regional equity markets are doing their part in the buying of stocks, and European markets are trying to push higher, but it is being negated by the repeatable pattern of U.S. markets easily falling apart. The U.S. will always be a major economic power, but after the 2007-2010 business cycle it will definitely not be the only economic power. Therefore the mighty dollar, the King of currency, will always have the crown; the global markets are too far into the dollar paper mountain debt to ever get out of it, but the luster and shine may be gone once the dirty laundry has been aired in public.

Perception, they say, is reality, and the reality here is that fair value on the dollar index is at 80.00, and very little right now looks capable of changing that, either way.