Parameters in Equities, Oil

by Ashraf Laidi
Oct 22, 2009 18:16 | 54 Comments

Parameters in Equities, Oil

Last week's oil price break above $75 was an essential catalyst in accelerating the pace of USD selling beyond $1.50 in EURUSD, 0.93 in AUDUSD, and 1.03 in USDCAD. Technically, the next oil barrier emerges at $82.00 (100-week MA), a break of which would extend the rally towards $89.90. Coincidently, US equity indices also face their next resistance at the 100-week MA (1,100 for S&P and 10,209 for the Dow). But a more important landmark for the S&P500 stands at 1,121, which marks the 50% retracement of the decline from the October 2007 high to the March 2009 low.

Recall how oil prices repetitively failed to break its 200-week MA of $75.70s in August and September until recurring dollar weakness (hawkish central bank outside US) empowered oil traders to breach the key level. The simultaneous technical resistance in both of these high profile instruments (US crude and S&P500) may well dissuade the accumulation of fresh risk appetite. And Wednesdays downgrade of Wells Fargo may have been instrumental in stepping up trading volumes in a down day. But the only viable means for dollar bulls to see hope again is the implementation of the exit strategy. Short of such implementation, earnings disappointments and/or negative guidance, FX traders will see little resistance to selling the dollar.

Parameters in Equities, Oil - Oil Sp Oct 22 (Chart 1)

Fed Ought to Stop Talking About the Dollar

Federal Reserve officials should either get the same vigorous training when making statements about the US dollar or completely refrain from taking about it, and allowing the US Treasury exclusive authority to comment on the currency.

For the second time this week, a member of the FOMC causes more selling in the dollar after choosing to shed light on the US currency to the public. 30 minutes ago, Boston Feds Eric Rosengren (not a voting member in this years FOMC) said the decline of the dollar reflected investors improved confidence with the economy and their resulting appetite for risk. While such remarks are no more than a stating of the obvious as far the current FX market dynamics, they constitute an overt green light to sell the currency, especially when uttered by policymakers of the interest-rate setting body of the US.

On Monday, Chairman Bernanke may have intended to support the dollar when he raised the importance of timely exit strategy, but the way he went about it had the opposite effect. Bernanke said adopting a fiscal exit strategy "is critically important in order to maintain confidence in our economy and confidence in our currency". So far, the Fed has made it clear it would not be exiting its monetary policy strategy any time soon (aside from talk about reverse repos). Bernanke's speech placed the onus on the Treasury as far as fiscal policy is concerned.

And since fiscal tightening by the US Treasury is not expected any time soon, traders easily conclude that the lack of any exit strategy (fiscal or monetary) will empower them to retest last year's all time lows in the greenback.

Comments (Showing latest 10 of 54) View All Comments
United States
Posted Anonymously
15 years ago
Dec 18, 2009 23:30
good posting.i like it. thank u. :)-">bathmate</a>
Kolkata, India
Posts: 210
15 years ago
Nov 6, 2009 6:35
There is an exiting figure forming in Dow fture price pattern.SP fut can hit upto 1076 range but stop out if 1099 take out.
Posts: 60
15 years ago
Nov 5, 2009 23:40
I see a double top formation in H1/H4 of EURUSD. However, with the stocks rising, i am skeptical abt shorting it. your opinion please. Thanks
Ashraf Laidi
London, UK
Posts: 0
15 years ago
Nov 5, 2009 20:58
rim, as asad said, CIT bankruptcy was a formality. confirmation came in the weekend and DID WEIGH on Asian and US stocks in Monday.

mulhouse, France
Posts: 2822
15 years ago
Nov 5, 2009 10:44
London, UK
Posted Anonymously
15 years ago
Nov 5, 2009 10:36

One, CIT's not THAT big enough to have an impact. Second, it is a clinical bankruptcy, i.e., we knew for months this was coming...we were prepared for this...and we know what to do w/ it now )unlike Lehman when it collapsed overnight,,,with no solution in sight)...

Posts: 121
15 years ago
Nov 5, 2009 9:22
Dear Ashraf

The bankruptcy of CIT group seems didnot negatively effect the Stocks in US

What can be the reason of that ?
Munich, Germany
Posts: 528
15 years ago
Nov 4, 2009 21:20
@Montmorency: Yes, that's me. :)
Damascus, Syria
Posted Anonymously
15 years ago
Nov 4, 2009 19:48
Hello Ashraf where is e/yen going please
Posted Anonymously
15 years ago
Nov 4, 2009 18:36
Hi Jack,

Thanks for your clarification. Interesting what you say about the spike in the USD index chart. One of the brokers I use showed it. Another didn't. The one who did seemed to correct it later, although it still showed a healthy jump. Fortunately, it didn't affect me either way, that is to say, the erroneous spike.

As it happened I _did_ buy EUR/USD at the wrong time (I thought it had dropped as far as it was going to. However, it came back in my direction eventually, as I expected it to (eventually :-) ). [Don't trade like this at home kids .... :-) ]

I agree it's as well to be prepared for what might happen. Everyone (not here necessarily, but in the wider world) seems to have written off the dollar, but there seem to be several scenarios in which it could stage recoveries or mini-recoveries, each one of which is a potential pip-generating opportunity (or pip-losing threat, of course).


P.S. Xaron: Are you the same (BWILC) guy who posts on FF under that name? Interesting posts/blog.