Forex Robot: Swing Change Towards The Undesired Dollar

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TheLFB Daily Client Note
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Client Note: U.S. Session Preview

March 29, 2011
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Dear Trader,
Welcome to TheLFB's daily client note. Follow along with the trade team as they
review global markets, headlines, trade divergence, momentum, and currency impact
over the 24 hour trading session. Please use the links opposite to access recent
articles and videos, and to register for trade desk updates.
Sincerely,
TheLFB Trade Team
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Trade Desk Note
Swing Change Towards The Undesired Dollar
Global risk and precious metal trade revealed a slow start to the final week of
March, with main global equity indices following the bullion trade lead, which although
not breaking hard to the downside, have seen more interest in testing support than
breaking resistance.
The dollar index, as the global reserve currency, is still trying to get re-aligned
with its historical inverse correlation to bullion and equity direction, which would
lead to an upside test of 77.50 on the dollar index if equity markets drop S&P futures
trade below 1295.
Over the course of the last six months, since the announcement and implementation
of quantitative easing programs by the Federal Reserve, the Asian trading session
has been very disjointed and offered very little in the way of consistent price
action follow through.
The European session has tended to be benign, with the US session containing most
forex price action, in response to daily POMO Treasury buy-back auctions.
Over the same time, the historically strong inverse Usd/Equity pattern has also
been tested, with the last six months revealing global markets that are more than
capable of traveling in any direction, at any time, at the drop of a hat. The lack
of overall market participation, dramatically low equity volume, high interbank
lending rates, and an unwillingness to leave risk on a balance sheet for any sustained
period of time, have put in place market mechanics that are very reactive to regional
open and closes.
There now looks to also be a move building that is shifting momentum back to the
European trading session.
Intraday traders looking for momentum plays will now start to rely on the 2 AM German
DAX futures market open, the 7 AM London price fixings on gold, the 11 AM European
close, and the 2:30 PM NYMEX commodity market close (East Coast Times). Outside
of these time-frames sustainable price movement is likely to be seen only in reaction
to breaking headlines.
With news now filtering through of a premature end potentially for the Federal Reserve's
QE2 program, traders will likely see a resumption of the Usd/Equity inverse correlation,
that sees equity selling accompanied by dollar buying, and vice versa.
A weekly close on gold bullion below 1400 could instigate a technical move lower
to test support at 1350, which would also reveal the strength of recent buy-the-dip
patterns of trade. Silver bullion futures contracts have revealed a potential near-term
short trade that could drop silver from 36.50 to test 36.00, and then potentially
35.20. West Texas Intermediate oil trade has already shown near-term weakness with
a move down to test the 20-day simple moving average but 102.50, which is in-line
with an overall pullback in global commodity trade.
Major currency pairs are struggling to break and hold four-hour chart price ranges
that have been in place for virtually all of March. There has been overall US dollar
weakness in that period, with the Commodity Futures Trading Commission (CFTC) revealing
record short-dollar positions currently open. With jawboning from Fed officials
now seeming to indicate that further quantitative easing programs are not guaranteed
in any way there could likely be a liquidation of those massive short dollar positions,
especially if S&P 500 trade drops below 1295.
This could be a perfect storm for near-term US dollar buying, which would not be
out of a desire to be long the US economic outlook, but would rather be instigated
as a hedge against a move out of risk and into the relative safety of bond and interest
rate trade.
In general, there seems to be a compelling reason for equities and precious metals
to pull back and test support; however traders will be very much aware that the
pattern of trade over the last six months has been to buy any tests of support.
It will be interesting to see whether increasing volume on the downside will be
able to generate enough momentum to change near-term trends to short on equities
and bullion trade, and move the dollar index into a near-term long trend. Signals
and alerts will be sent to clients as momentum reads are confirmed, and TheLFB's
daily client notes will reveal the sentiment and momentum changes as they happen.
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