USD's Directional Trade

Tight Squeeze!

Witht the conflicting news reports from the manufacturing figures, non-farm payrolls and now the disappointing umeployment figures have squeezed the US Dollars movement to move lower. This normally happens in between trades as traders, fund managers, sophisticated investors and the retail speculative trades made makes it more difficult to trade the foreign exchange specially at the beginning of the year. With barely a couple of weeks into the trading, the resiliency of the market to react to these fundamental reports can be seen on the charts themselves.

As most trades are made indirectly away from a dollar based trading to a simple foreign currency base trading. More often than not, the cross rates serves relatively a contrary hedge not only for the US dollar but amongst the other major currencies involved. The applications can only be made more ideal since trading directly with the major pairs at this time may well be susceptible to wild price swings in the market.

A typical example of a tight squeeze could be seen in the chart of the EUR/GBP cross rate that clearly indicates that the past couple of weeks were simply bargain hunting and position adjustments before and after the holiday trading sessions. However, the directional trade of the Euro and the British Pound is contrary to the US Dollar's downward movement as of this writing.EUR/USD working at the 1.4520 and the GBP/USD at 1.6137 reacting to the negative US jobs report.

Meanwhile, the obvious gold prices is still working at $1,156.00 higher which has its own relative strength regardless of the US Dollar movement at this time. More likely scenario t move back an attempt its previous high of last year is seen to be more of a strong sentiment. How fast it can get there is the next big question mark.

Both major such as the USD/CHF and the USD/JPY may find some difficulty as both try to react to a spread hedge and straddle scenario where the USD/JPY moves higher/ slower and the strength of the Swiss Francs or rather the USD/CHF moving the opposiite direction. USD/CHF at 1.0169 and the USD/JPY is at 92.32 from a 93.77 high. A technically influenced USD/CHF on a day to day basis shows an obvious selling divergence that weighs heavily on the US dollar rather than the Japanese Yen as trades are made during the Asian markets.

Try to avoid to get caught in between these trades as a tight squeeze would continue to occur specially when the major players decide to build and continue to adjust their positions from the previous moths and the start of this year.

Good Luck and Happy Trading !