Monday, January 15, 2018

European Majors Momentum Driven Market USD Weakness

With the USD still struggling to find a relief recovery have finally been taken over by the momentum driven trades from the YEN, EURO, CABLE, and the AUSSIE Dollar. It's like a concerted effort by the GANG of FOUR (4) as we call them in the interbank market. Initially leading an early stage with the Japanese Yen below the 110.50 levels for the past 6 trading days of accelerating value alone have actually led the pack as the rest followed suit.

While keeping tab at the USD weakness, Oil and Gold prices higher the selling pressure surrounding the DXY have made it harder for any immediate recovery. Although, we did mention that the probability would be towards mod-year term for a gradual move as the USD aligns itself for the next subsequent rate adjustments by the Federal Reserve.

Its has now 'VALIDATED' our market call on the USD Weakness Lifts Majors Higher dated Jan 02, 2018. With the EURUSD (chart above) near the 1.2280 high, CABLE at 1.3820 first line of defense, and the AUDUSD back to 0.7980 levels. Therefore, with the USD being our main valid indicator for currency trading when it moves more often than not the rest of it's counterpart moves in line with the corresponding value.

A more direct effect can be expected with the EURO as it carries a heavier weighted average distribution from the USD Index composition as indicated in the link provided for TSOT members access. It also shows the other relative importance of knowing how these distributions are reflected with the rest of the global currencies in Europe and Asia.

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Behind Equity Indices Mix Market Reactions Contrary to Record Highs

What really drives these mix market movements that we are seeing?

Especially in today’s exceptionally high equity prices in the stock market , often times there are relatively mix price directions that occur making most investors and some market participants to wonder … what gives? 

RECALL: As for the most recent declines with the Futures stock indexes on the DOW with a triple digit drop, both the SP500 and the NASDAQ following suit with an average of a double figure have been the relative market behavior before the next rally takes place,. And we have witnessed these occurrences in just the first two weeks of the new month of January 2018 from the 2nd week of November, 1st and last week of December thereafter before closing at a higher price recovery. Although, to date the major equity  indices have made their new record highs even to this writing. It's really a reflection of a 'Market misdirection'.

It’s as natural as it can actually get. For those who closely monitor such mix market behavior, it is the responsibility of each investor in every level of sophistication to know what really lies behind these down on one side and up on the other side. And obviously there could be a number of valid reasons why these things happen.

Although, market reports after the fact is not as valuable when a tactical investor or professional trader's need to know in real time. As prices do move and could easily spill over to the next trading session which often does. This not only applies with the US markets but with the European and Asian markets as well since they are all correlated and globally connected.

Citing a few instances such as the China’s unverified reports that came through the wires stating that it would stop purchasing US treasury bonds and turned out to be challenged by the Chinese regulator saying it was ‘fake news’. Thus it was just one of several reasons that prompted the US Dollar Index to decline below 90.90  basis point which sent European majors, oil /energy and gold prices higher. Equivalently has more room for further gains at this time.

Over and above such other reports, Tech, Financials and Consumer stocks have been quite dominant beneficiaries of the newly passed tax reform. Even Jamie Dimon CEO of JP Morgan Chase have stated that it’s a positive move for banking and the economy. Then again, there are a lot more fundamentals influencing current stock prices as it continues to be a reinforced trend from secular forces until such time it does otherwise.

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