USD vs. Major Pairs

Written by Research | 25 January 2010

Wild Reactions to Market fundamentals

The stock markets reaction to President Obama's tighter regulations for big banks to limit their leverage risk exposures has led the market prices to move lower and the investors sentiments are slowly pulling out US dollars assets in the market.

This was the general theme that has revailed at the closing of the week for January 22. Paul Volcker's significant participation on President Obama has called the plan as " Volker's Policy " that has been seen as a stiffer hand of the Obama administration. For all intents and purposes as most detractors of the Obama administration has stated that President Obama's ability to lead the United States out of a financial crisis is now being questioned.

However, if one would really look and analyze the market's conditions as we have mentioned before; this decision coming from the Obama administration should be treated as a lifeline to the US Dollar, even though most banks and other finance economist view it as otherwise. The unbearing sentiments against it has been overwhelming that it is also being felt with the CFTC's hard line reactions of going after the FDMs and other Forec dealing broker-dealers as to the allowable leverage trading that they could offer to retail forex investors. As major banks dealing in the OTC forex trading has been using extremely high risks and leverage prompting more probable loss in the market. This was indirectly triggered by the recent Citibank losses that was earlier reported.

Some may not see the actual connection to these two scenarios but the obvious is actually present. That's why there has been a lot of clamour and campaign being done by the prominent and major Forex dealers, banks, brokers and even some retail investors against the ruling by the CFTC's proposal. As everyone has made their point well taken and even went to the extent of publicly stating their disgust and that the Forex retail Trading well maybe in jeopardy which is about $1B in transactions alone.

With all of this said and done, the market's directional movement have actually been mixed, as the US Dollar rallied for the past couple of days just like we have speculated on our most recent report " Fx Speculative Market Outlook dated the 18th of January 2010. Where the US dollar would still continue to rally to the current high price level of 78.81( as predicted on our Market View ) and correction lower to the 78.13 levels as a mere liquidation and settlement losses for the past week where the USDX was slightly correcting due to the mix reports on unemployment / jobs figures, manufacturing and the UK's inabilty to get out of the crisis as fast as economist have expected. US Dollar trade headed to the downside during the session against the majors, particularly versus Japanese Yen; as it strengthened on the session. General theme has moved toward risk aversion, potentially on profit-taking and not to mention stop-loss liquidation on most recent positions from the past two days seeing a price reversal amongst the majors.

This sudden movement in the directional trend confirmation of the US dollar to move higher have prompted the EUR/USD and the GBP/USD to head lower with a more dramatic impact from the USD/JPY from a high of 91.65 down to 89.77 low and currently working at 89.91 as of this writing. The whip-saw reaction of the market in major currency pairs mentioned above have been trading at a wider hi/lo range where most traders/ investors were stopped-out of the market very easily. The previous outlook mentioned on the cross-rate of the EUR/GBP have been confirmed to move lower when it had broken last months support of 0.8850 and moved lower to the 0.8649 tha prompted the EUR/JPY to follow in the same directional trend back down to 126.52 and currently working at 127.22 as a corrective movement since its closing for the week ending January 22. There are no technical configurations on the chart that would signify going back to the high levels.

The probability of a spill-over and continuation for next week's opening prices would be expected to weigh in the market heavily as it continues its sentiment index. Two days of up and down movements are critical specially for scalpers, day traders and also short-term traders that only go after 10-50 pips in between trades. That is also why setting leverage restrictions as seen by the CFTC is being implemented as most retail forex brokers are offering a high leverage for margin trading in the Foreign exchange market.

If only traders with enough experience and sophisticated investors would do due diligence and see that there really is a better way of trading the forex market even with a smaller leverage, of course 10-1 is quite small. This will surely be renegotiated to meet at least half way through and may end up to be 50% or 30% lower from what is the average trading leverage by major forex broker-dealers and banks offering these services.

Strategic trading techniques from well experienced strategists knows real well that this is the way to go. Percentage trading by implementing strategic hedging abilities in positions and proper money management allocations will always be a plus factor in any trades done by investors. However, the problems really can be defined as to investors having the real orientation of what is actually provided to them. So long as investors would take that extra step to know what is avaliable to them other than what they understood from the training seminar, webinars and demo practice accounts offered to them. It is finding the right source of information from the right people in the industry. Unfortunately, a lot of them only look at their self-interest when it comes to getting their commission dollars from the trades made by their clients.