10th September 2015 Currency markets, news and analysis

Forex Market Commentary  

Anxious traders are jostling for position.

There's a lot of institutional hedging going on at the moment that suggests something dramatic is about to happen. We may not see it yet with our open eyes on the spot but it appears that this sideways market on the USDX and EUR/USD is set to make a move with the key Sept FOMC data. Looking ahead one has to turn to OTC forward derivatives that form the bulk of the trades and listen very carefully to the dealer pipeline on where the bids and offers are falling. On the futures markets the USDX expires on the 3rd Wednesday so the current ICE September 15 contract is due to expire on the 16th. Expiry dates on the futures are usually notable for 2 things: 1. Volume thins down and open interest dwindles as settlement looms ahead, and 2. ETF and tracker funds tend to roll over their contracts forward to the next month, in this case being the December 15 contract. On the USDX December contract volume has jumped from 4,000 to 10,000 to 35,000 in the last 3 days. Ok, that sounds just about normal given a rollover event is about to occur next Wednesday. However, and this is where curiosity has got the cat going; the September contract with about 5 trading days left until expiry has also seen in the last 3 trading days daily trading volume increasing from 13,000 to 40,000 to 57,000! That's utterly incredible! That's not normal for an instrument about to expire and hedgers nervous on a massive Dow drop are hedging their bets right now with a view to rollover Tuesday right before the FOMC at the end of next week. Something big is in the air and any trader that can put 2 and 2 together can quickly ascertain that a snap rate rise is fast becoming a reality.

Turning to the 30 day Fed Funds September/ December contracts nothing seems to move and once again suggests a defacto 25 basis points official rate hike has already been taken. Along the Forward yield curve we are seeing pressure on the front end for rates to lift off the zero mark.

The EUR/ USD front end September contract has been roughly hovering between 24,000 and 30,000 volume in preparation of a rollover next week and so as far as the exchanges are telling us from a snapshot of 3 forward products; a rate hike next week is officially very strong with the USDX set to climb 2 points, the Dow to take a hit and EUR/USD more or less to manage its current 1.10 - 1.12 trading range. The China crisis without doubt has been the making of the Euro currency. Greece came and went; the ECB Q.E programs is going on smoothly without too much pressure on Eurobonds; altogether the ECB has won so much inspiring confidence the last 2 weeks that global investors have not piled into gold bullion as a safe haven; which is altogether remarkable that the Bund would become the favored choice in times of trouble to equal the status of the US Treasury.

In the currency markets there is strong OTC forward buying on the USD and options buying but the EUR/ USD is holding nicely and less inclined to move much given a sudden drop or surge in the Dow and US Treasuries next week.

In view of this scenario Bullion has downward pressure to the 1100 mark and crude oil may slip back down to 40 Dollars particularly if the Dow energy sector components take a massive wallop on the chin if the entire Dow swoons with an official rate hike.

US and global equities traders have had a so-so day; nothing dramatically eventful up or down.

Better soon than later and on the back off the China crisis than to go through this never ending weaning of zero per cent money. USA is in great shape and unfazed by the loss of sentiment overseas in Chinese equities.

Please watch on Bloomberg why every major economist is now clamoring for the Fed to get it over and done with!

http://www.bloomberg.com/news/videos/2015-09-11/u-s-rate-hike-why-waiting-won-t-help-markets

In speaking of moving averages; markets are not rational and daily price action volatile, but in the longer run trader expectation and negative sentiment can be collectively summed up through the 50 day moving average. Always look to support and resistance band lines as the key to understanding in the long and short term where prices are converging. Professional technical traders use 50 day and 200 day medium and slow moving averages as fundamental cornerstones for interpreting the direction of price action.

USDX

US Dollar
95.545     +0.043 +0.06%
Support 95.230     Resistance 97.100
Forward 1 year - 96.998s.

EUR/USD
1.129610     +0.001660 +0.15%
Support   1.10367          Resistance 1.12567
Forward 1 year - 1.12460s.  

Crude Oil  WTI

45.31     -0.61 -1.33%

Support 44.68  Resistance  47.92
Forward 1 year - 50.97s.

Gold

1110.745     -0.845 -0.08%

Support  1,106.2    Resistance 1,139.4
Forward 1 year  -  1,126.3s.

Pieter Bergli - DeLoren Trust Holdings

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