In a message delivered on Thursday the President of the U.S. declared that banks will no longer be able to service, own, and run separate hedge funds, nor hold real estate investment vehicles that are reliant upon funding that is not free and clear. The response has been a staggering drop in global equity trade, with all main futures exchanges dropping upwards of 2% in midday trade. The commodity pairs have absorbed the dollar buying, Usd/Jpy has absorbed heavy dollar selling, and the European based pairs have held steady.

In Wall Street trade on Thursday, the dollar has found buyers, but today it is not out of a desire to buy into the U.S. growth story; this move is all about the move to the relative safety of U.S. Treasury notes. Equity markets have been raped and pillaged by the XLF, the Exchange Traded Fund for the financial sector, as the U.S. President’s 11:45 EST speech in regard to reform bills on financial trading gets absorbed.

Asian markets still have to take into account this move, and the currency market may retrace some of the ground lost in Wall Street trade. It will be interesting to observe the reaction coming from other countries over the next few days, if they support these decisions taken by the U.S. government. Most investors are now waiting for a reaction from EU officials. A similar decision regarding bank’s trading branches has the potential to send the market into a new wave of risk-aversion, continuing the wave of dollar-long orders.

Dollar Index Technical View: TheLFB Member Charts

Daily chart trend: Mixed. Main price points: 74.19, and 76.82. Looking for: A Long wave I/ A

(more…)

This Week’s Market Outlook

Highlights

• Currency markets to remain beholden to the risk trade
• Bullion’s bull-run still intact
• Sterling takes a hammering, focus on 3Q GDP and public finances
• Key data and events to watch next week

Currency markets to remain beholden to the risk trade

The moves this week should convince anyone that had any doubt, that the correlation between equity markets and currencies remains alive and well. It was a rollercoaster, with EUR/USD oscillating between 1.4800 support and 1.5000 resistance for the better part of the week. The S&P 500 meanwhile continued to find interest on either side of the pivotal 1100 level. It seems that EUR/USD 1.50 and the S&P 1100 go hand in hand as both remain extremely challenging technical and psychological levels. Indeed, both have only closed above those crucial levels three times this year – euro in October and stocks just this week. It should not surprise anyone that the correlation between these two since the beginning of the second half of 2009 has been a stellar 92%. Don’t look for much to change on this front anytime soon.

(more…)

Since last covered the Canadian Dollar – on July 29 – the Canadian Dollar appreciated another 2% against the US Dollar, reinforcing the perception that the currency is both too volatile and appreciating too rapidly. This concern is harbored by the Central Bank officials and policymakers, which fear that the rising currency represents the proverbial wrench in the Canadian economic recovery. (more…)