Dollar Index Moves Lower
NEW YORK (TheStreet) - Half-day trade and bank holiday order flows have allowed equity markets to reverse off resistance. Equity/USD inverse correlations are weak today with year-end book balancing dominating thin trade.
Soft commodities have tracked sideways, while oil ($89.20), gold ($1,410), and silver ($30.50) test intra-day support. Currencies have held the dollar index (79.40) lower, with major pairs in a daily tag-team pattern that is taking it in turn to test USD support.
Risk markets will be looking for reaction to
S&P500
futures testing 1,250, with a close above or below that point on a weekly chart basis possibly setting the tone for next week's trade. A sustainable long-equity move will need the foundation of support at 1,250 to easily hold.
2011 starts with a loss of the 95% 12-month correlation between equities moving higher and the dollar index moves lower, helped in most part by the fact that the index is weighted heavily (70%) by two currencies, Eur (1.3370) and Gbp (1.5520), both of which have shown sporadic price action in December. The index is made up of euro 58%, Japanese yen 13%, British pound 12%, Canadian dollar 9%, Swedish kroner 4% and Swiss franc 4%.
Most major pairs are looking to complete their 30-minute and 1-hour chart cycles, which then set up solid potential for sustainable moves next week. The currency pattern of trade has been dominated by 5-minute to 15-minute bursts of price action that then consolidate through the next session. New-year momentum is unlikely to allow that pattern to continue, just so long as new-year trade brings with it an increase in global market participation levels, which historically it does.
Aud (1.0175), Cad (0.9980), Chf (0.9340), and Jpy (81.35) have not moved too far from their opening prices, with each one now starting to show overbought reads against the dollar. 4-hour chart reads are showing mixed momentum and trend reads, with Eur and Gbp the two that are showing any potential weakness against the dollar of the six major pairs.
Interest rate markets are on the rise, with yields now pushing close to 5% on a 30-year U.S. mortgage as Treasury note values continue their decline, and Treasury yields continue to climb.
The impact on October-December trade having to absorb the Financial Regulation Bill, and the Federal Reserve quantitative easing program cannot be underestimated, and it will be refreshing for most to get into a new year with price action and momentum dominating plays, rather than sound-bite economics.
Marco Hague is one of the founders and principals of The London Forex Broadsheet (commonly known as TheLFB), a global forex trader portal with headquarters in the U.S. Hague began his career with the Bank of England dealing with foreign exchange control, and he has been trading for the last three decades. He has been involved with institutional risk asset ratio analysis and the implementation and maintenance of institutional trade desks globally.