Keeping Pace with Fundamentally Motivated Price Action

With the RBNZ and BOJ rate decisions as well as the UK GDP figures, how would these three (3) powerhouse event risk affect the USD's performance? Other factors needs to be considered like the FOMC rate decision.

Weighing the effects of these events would certainly affect the individual currency pairs first relative to the USD.  Pre-release of data and post price reaction at the end of Wednesday's session trading would indicate a glimpse of what the prevailing makeup of the market direction towards the closing of the first month.

Although, the stock market has already showed its close-ties with oil prices will eventually disconnect, once the relative USD correction with the resumption of its directional trend higher. For as long as the USD stays above its benchmark and equilibrium price levels; the ability to sustain its strength remains with acceptable & tolerable drawbacks well within their respective wide trading range for now. However, the wider the range bounce & decline, the better for swing traders to take advantage of as price difference between days & weeks could be substantial even for a single trade.

And for a variation of position trades, the market's prevailing timeline is still valid since the beginning of the year simply based from the linear cycle it has proven to make turning points occur give & take a few. As Time & Price can extend / expand extensively disregarding some event risk & reports totally contradictory to the fundamentals which can still overwhelm market participants to a certain degree. And we have experienced these types of price actions occurring more often due to market volatility.

Our take would be to clearly watch, learn & consider Wednesday's reports and settlement prices heading towards the closing week of April 29, 2016, that would provide an additional view for the coming new month's trade expectations.

USD Relevant Adjustment with Foreign Currency Rates

In Search of Equilibrium in a Time Line

After confirming a bearish market call on the USD since the start of the 2nd quarter, the registered low @93.88 bp still serves as the initial support for the DXY. Upon doing our due diligence, the outlook for the DXY would be for a wide daily consolidation within its trading range until such time another catalyst emerges in the market. 

DXY Weekly Chart May 13, 2015

There are several surrounding factors that keeps market price swings at current levels. However, these price adjustments are well within our market call and the same due diligence on global exchange rates' equilibrium levels & self-adjusting into these market conditions after a round of rate cuts by major central banks  interest rates. China's two consecutive moves on the RRR and the recent rate cut have been considered by us as a market neutralizer after the RBA did the same beforehand. Where further stimulus are meant to prevent China's economy to deepen from their current situation.

For now, the directional trend for a weaker USD continues until such time it says otherwise. The consolidation may remain in tight ranges while a declining formation would be intact in a technical perspective along side a variable time cycle before the USD pivots back to higher grounds. The assumption would be correlated to the USD rally that took place well within 7 months to achieve a relative high for the USD. 

With that said, to consider a variable time line that the USD would do the same on the flip-side with a specific price level will have to be defined based on this analysis. And on top of this case scenario, is to find the relevant signal where the probable disconnect of the USD outflow of investors from the current market conditions of the Dow Jones as an additional indicator for such occurrences within the time line. In essence, due diligence is a must to come up with a well informed trading decision. More to follow related to this subject matter.

Since in today's global information network is well in place, most sophisticated investors and traders are more self-directed with the information available. What is more important is knowing and be properly guided with the right directive information applicable and meets their trading criteria before any trade execution. 

Overlay Analysis: EURGBP Cross-EURO vs. USD Index

Confirms: Breakout

To identify a probable breakout is as challenging as ever due to the degree of trading difficulty from the market's reaction. Although, what drives an establish trend is weighed by the current indicators, but more specifically persitent market sentiments that reflects the true price action after the fact. However, major participants and traders with the ability to maintain consistency still has the upper hand contrary to speculative trader/investors to withstand market swings even contrary to their active positions.

In our sequence of market view analysis, we have made mentioned that the USD was one of the best trades before and after the fact. The bullish sentiments and data released favoring the USD rally has provided traders and investors the leverage of finding high probability trades thereafter. Although, going through some analysis most traders had some lingering doubts for the USD to continue its rally after a string of good economic reports trailing the market.

Price action from the earlier highs followed by a slight weakness for the USD indeed provided some market relief which is currently being made. Click here to continue

Market Analysis: Majors & Crosses

The price swing seen in the Forex market reflects the continued investors uncertainty and vulnerability to shift trade positions at a short span of time. Market exposure on trade positions across the majors has been cut short as reflected with the latest COT report with major participants still in dominating market sentiments contrary to data coming from both sides of the continent.

This week's barrage of economic reports with a special attention on the coming EU Zone unemployment data followed by the US Consumer confidence and the FOMC overlapping with the new trading month would provide market volatility and price swings in both directions. However, specific price range trading within their respective parameters have been defined awaiting some fresh incentives this week.

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Balancing Trading Strategies

Between sequetration USD negative & the NFP report USD positive

The rally for the USD after Friday's jobs data have caught some short-speculative positions flat-footed with the better than expected jobs numbers of 236K & a 7.7% unemployment figure. Which overwhelmed the market with a reinforced rally contrary to its corrective pullback since Monday's opening trade sessions.

Today is a little more subtle since a follow-through have not taken place, but likewise will occur at the least time expected by the market. For now, it is safer to state the importance that the first quarter of the year will be good for the USD, as supported by more than favorable data for the US economy.

The only uncertainty is the cloud hanging over the political bickering of Washington amongst members of Congress with the Administration. Meanwhile, the Fed has taken upon themselves further to provide monetary easing since 2008 and would gradually pull-out once a more sustainable recovery is seen. While doing so, the ability of Europe to really overcome their regional debt problems has not been helpful. And in contrast, as most analyst have been expecting a hard-landing from China has been quite disappointed as it is expected growth is within the range of 7.5-8% for 2013 compared to the US projections of 1.5-2% for the same year. With BOJ having a firm and aggressive stance for its monetary easing would likewise have to be within a competitive level amongst its trading European partners. 

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On Currency Wars:

The risk of Politicizing Forex rates

The free market base economy has been dominated by the dynamics of Political policy makers from the three (3) major markets. With Asia having two of the largest economy driving the present market conditions like China & Japan combined represents 21% of the world's GDP.
And the recent actions taken by Japan's Shinzo Abe pursuit of national self-interest to be able to pave the way for the recovery of the economy; has asked the BOJ for a 2% inflation target figure that would result into a stronger and aggressive stance for more monetary easing.
As a matter of record, Japan has come from a trade surplus to a trade deficit,

Directional Trend 4th Qtr of 2012

The start of the 4th quarter of the year with relative good signs for US manufacturing providing the lift for the US Dollar. The surprising move has kept many analyst and traders in Wall Street to continue their raging arguments on the prospects for Quantitative Easing.

As many traders and hedge fund managers have tirelessly been going back & forth with the same issues the European debt crisis that evolves with Spain taking the recent limelight of the story. Confusing as it may seem to a lot of foreign currency traders and investors; the market conditions in trading have changed its financial landscape of market analysis and trading execution.
Since high frequency trade execution by institutional houses including interbank trading have provided a higher degree of trading difficulty in the market.

A classic example...

Degree of Trading Difficulty & Volatility

The degree of trading difficulty has taken toll even amongst the best hedge funds portfolio managers like Louis Bacon of Moore Capital Management. Where he has decided to lessen his company's trading capital exposure due to dried-up Market liquidity taking place and the degree of trading exposure in placing a huge structured trading strategy of their portfolio in the current market conditions. 

With a higher degree of expectations every year after a posting  contrast with his previous success of 18.3% since inception, a 1990 and 1992, return of 86 and 45 percent was some of the highlights. But contrary to the previous year down by 2% and currently a 0.35% as of June this year 2012.

Although, Mr Bacon does not trade a huge portion in the FX market; but this has shown that a substantial amount of value in trading confidence in the market proves the overall degree of trading difficulty have gradually been increasing alongside the volatility of market price fluctuations. Once more "what is the percentage of a potential & profitable trade?" comes into question with the current market conditions. What trade tools are applicable and practical to increase the degree of trading successfully in the market today? These are the vital questions that needs to be addressed before any trading decision should be made which we would likewise be discussing in our next article.

For now, after a gruelling trading 2 weeks of daily up and down market swings experienced particularly with the Euro and the Sterling Pound last Aug 02-03; where market prices have traded within a wider-trading range before and after Mario Draghi's remarks. Not to mention the inability of the FED, ECB & the BOE to do more to justify a quantitative easing actions which the market participants were so eager to anticipate & speculate the need to take action. At the same time some analysts have started their interest in challenging ECB President Mario Draghi to make good and follow-through his strong comments of preserving the Euro currency last week.

The two (2) day market price movement of the Euro with short-covering actions by sellers have led the market squeeze of the EURUSD, GBPUSD and spilled-over on the USDCHF.  Market capitulations would gather pace with increase volatility and major market price swings towards the next trading weeks to follow. No new catalyst to spur any dramatic price action for the week as market investors wait out for stocks to continue its rally after its corrective moves.

On the technicals;...pls. continue 

Forex Price Equilibrium

Its that time of the cycle year when we have to do some due diligence analysis as to where and how global prices of world currency rates fair compared down to the very basic commodity prices. However, the balance of trade amongst the largest economies and emerging markets worldwide are taking up necessary steps & measures avoiding going back to recessionary periods and the global financial crisis of the past. Austerity programs in the European continent is underway with Political policy changes to go alongside with it. Although, the crisis has now rekindled previous resolutions that would try to resolve other European neighboring crisis in other countries have again retested investors confidence in the financial marketplace. This is on top of the Middle-East uncertainty from the Iranian sanctions to the political crisis in Syria with China and Russia pulling their veto strings towards a possible resolution.

With the three major economies deploying strategies like the US QE measures, Japan's repurchasing programs and a slowdown in China has kept a slow global growth indicating investors to do the same in terms of trading activities. Thus making liquidity flowing in the financial markets across the global economies. But even with these measures the trading volumes have declined while investors shifting to the world's Reserve currency and US Dow Jones have reached its current levels in this kind of economic conditions.

The foreign exchange market prices have come to another pivotal point in time where current prices are now at the verge of global price re-alignment in the forex market or in simple terms an equilibrium level where prices would have to re-adjust through market forces before a major market movement would occur contrary to or a continuation of its current trend. There will always be a major corrective move within any major trend either way on its way up or down. Pls. observe the prices of the EURO, EURGBP cross and the USDx price levels dated September 13, 2010 in this article / video and compare the price levels currently in today's markets. The indicators used are one and the same and should assist in being able to determine as to which direction the markets would probably bring to the table for the next best currency to trade within the upcoming major price fluctuation.
Related article: Before a major market action occurs 
                   : FX Trends & Market Opportunities