Dollar Index at Swing Point

The short-dollar move started to gain momentum as the trading session developed.
By Marco Hague ,

NEW YORK (TheStreet) - Forex pairs moved back to the opening prices as the European markets started trade, ahead of the Irish government vote on the IMF/EU bailout on Tuesday, along with regional economic releases that could increase the intra-day volatility, including a rate decision from the Bank of Canada.

However, as the session developed, the short-dollar moves started to gain momentum.

Equity markets held support, again, on very low participation levels that may have excluded a lot of retail investors from the ramps higher. The moves have not been easy to generate, with most stock price action coming in the futures markets, leaving cash trade to have little follow through.

Commodity markets are also easily holding support on any reversal tests, with metals and soft commodities now pushing yearly highs, with most markets up on the year by over 50%. The USD has done well to hold support, and find buyers, in light of the massive moves in commodity markets that are denominated in dollar valuations.

Add in the fact that equity and risk markets going higher will generally pressure the greenback and there is good reason to think that the path of least resistance going into year-end may be a test of support at 78.50 on the dollar index (79.50).

Most forex pairs are trading at their daily chart Simple Moving Average areas which confirms that a heavy period of consolidation has taken place in recent trade, something that November chart price action is confirming on most currency pairs.

The next phase of the trading cycle would normally be a move into a trending market, which in the current environment of choppy and overlapping regional trade would be refreshing to see.

A break higher on

S&P 500

trade (1229) that moves through 1230 and holds for a session will very likely draw in bids up to 1250, and is something that will allow crude oil ($89.50) to get back into the $90 a barrel range.

Both moves will allow CAD, AUD, GBP, and EUR to move higher against the dollar, albeit at varying degrees as regional economics are absorbed. This is a heavy week of Australian and U.K. economic data releases, with enough U.S.-based economics to keep things moving along.

The Achilles heel for stock and commodity trade may well be the lack of volume, which creates an environment that can easily move prices higher, but needs to respect the fact that one high-volume reversal day could take out a month of gains at a stroke.

Bank early and often and the transition from consolidation to trend takes place, understanding that all major pairs are at pivot 4-hour chart areas that have yet to reverse the September/October Usd buying.

The situation could stay volatile until the S&P futures trade makes a sustainable move, one way or the other. Right now, forex trade is all about equity momentum, and whether the

Federal Reserve

have the wherewithal to navigate stocks higher while at the same time creating (unintentional?) inflation in the global risk and commodity markets. Unique time, and unchartered waters for many central bankers who are engaged in a currency valuation battle with the Fed.

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.

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