Chart comments courtesy of
MarketWatch.com
Today could be a busy day on
the Forex markets, but the monthly announcement on policy by the European
Central Bank (ECB), and the interest rate decision announcement by the Bank of
England might also be taken in stride as the market awaits the most watched
report, which is the Non-Farm Payroll figure from the US Bureau of
Labor Statistics tomorrow, Friday. Initial jobless claims today will, no
doubt, be divined, in the manner of owl entrails in ancient Rome , in an attempt at anticipation.
Yesterday also saw little in the way of price action for the same
reason. The ADP jobs report, which came out yesterday and which can give a
leading indication of the Non-Farm Payrolls number, was a little below
expectations. This failed to have a profound effect on market sentiment. One
reason for this might be that last month there was a marked discrepancy between
the two.
We are watching a number of instruments, for which the NFP report will
be catalyst, in one or other direction. These are the Yen (USDJPY), the Aussie
(AUDUSD), the Aussie / Kiwi pair (AUDNZD) and Gold. These go alongside the
Swissie (USDCHF) and Cable (BGPUSD), in which we held positions up to late
yesterday. We are now on the sidelines waiting, as is typical on those
occasions when high bi-directional volatility is on the cards. This is all part
of our normal risk management strategy.
Volatility
The volatility of the equity markets and, in particular, the DOW and
S&P indexes, continues to bear on the behaviour of currency pairs. We do
not handle equities but, as with gold, our feeling is that if the cheap money
made available by Quantitative Easing in the USA has been a factor in the
amazing bull market during the last number of years, then its reversal, so-called
tapering, can only be expected to result in an unwinding of positions in stocks
and shares, and a reversal in the direction of the equity market indexes.
There is much talk, among pundits of the stock markets, of the current
pattern of movement in the indexes and in stocks themselves being “a
correction”. This would imply that what is happening now is a temporary
phenomenon and normal service, as it were, will resume at some stage. There are,
of course, other possibilities: One of them is that a cyclical bear market could
have just got under way.
It would seem that a great many equity market participants are
conditioned against the idea of going short on a stock. They should consider
Forex. Here the concept of shorting is normal. One must sell one currency in
order to buy another and whether the trade is classified as a “long” or a
“short” depends solely on the arrangement of the two currencies that go to make
up the instrument being traded. This arrangement is arbitrary.
As always, whatever happens in equities is not likely to be an issue so
long as it is orderly.
And, methinks, therein lies the problem. It has been anything but
orderly since the "correction" began.
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