Currency Market Notes

The seven of the eight actual trading sessions of August have been unable to break the high/low trading range set at the end of July, at a time that global markets absorbed four main interest rate statements (U.K., ECB, Japan, U.S.), non-farm payroll numbers, and a raft of macro-economic releases that were mostly all weaker than had been expected.

The current Wednesday trading session is the first one of the month to allow price action to break the August range, and is doing it with Usd buying just as the client notes last week intimated it would.

Tenured traders will now be looking for one last re-cycle against the Usd that sees the major currencies make the last exhaustion move that fails to break resistance, as the final confirmation that weak U.S. data, slow global growth, and poor NFP numbers will not only set the tone for the month as per the pattern since December 2009, but will start to test the solid four-hour price action trend that has held the Usd in reverse gear for the last month.

Asian risk markets are already signaling short on most time-frames, with European markets signaling short if the German Dax (6190) closes under 6150, and the S/P (1105) closes under 1095 this week. Hard commodities are changing their trend, and if WTI (79.30) closes the week under 77.50, the final confirmation will be in place that global growth outlooks, and in particular weak U.S. economics, will empower the Usd as pathetically low global yields offer no reason to pay a risk premium.

The global reserve status of the dollar will now allow speculators to cash out of recent short-dollar trades, and by default will strengthen the buck. The dollar index (81.70) had a slow and steady decline from 88.50 from the highs hit in June and traders will now be looking for a replication of the May break from 81.50 that allowed a slow and steady move higher.

The May pattern of trade saw the dollar getting bought at the same time that S/P trade was reversing off 1215, in a move that eventually settled just above 1000 at the beginning of July.

The 17.5% drop in equity values in two months was partially reversed with a 7% move higher in July that revealed overall weakness in being unable to get back to yearly highs, and confirmed the accepted norm in the post-credit crisis era of 2% to 3% daily moves on main exchanges, with monthly swings back and forth that swap 7% to 8% values with impunity.

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