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Until next time

happy trading 

Mr Phil Newton or on LinkedIn Phil Newton trader

Week Comm 15 May.

Phil Newton's picture
rather than sling up charts (I think we’re all aware of the current technical levels & their implications) to highlight where prices are resting into the w/end, I’d like to use this weeks thread intro to take a snapshot of the key drivers which are influencing these moves at present junctures & the psychological reactions to them……. we’re all aware that the Dollar is under intense pressure….Gold is making new intra-level highs & other traditional hedging instruments are also being utilized to shade dollar declines as investors scramble out of heavy greenback issues to relieve the stress of the recent fall-out. The buck finds itself at it’s lowest level in 12mths against the Euro, & off the pace at 8mths lows v/s Yen……since the G7 meeting last month it’s posted a further 4.6 & 5.5% debits respectively against it’s main currency partners………. as I mentioned in a prev post, despite registering average data flows, including the trimming of the Goods & Services shortfalls, players continue to short the buck…….. the G7 headline spoke of addressing the global imbalance….other 1st Div trading nations, headed by the United States, have called for China to allow their currency to loosen it’s reins & float to a more balanced meter on the world stage…..and yesterday, U.S Treasury undersecretary for International Affairs, Tim Adams re-iterated his continual request that Japan should refrain from undermining it’s currency valuations thru rhetoric…….. the U.S & Far East talking heads are involved in “a war of words”….each attempting to neutralize a potential damaging scenario of over-extension to their respective currencies……. inflation, rate differentials, import-export ratio’s & $ held reserves are all key influences in balancing each nations book values & ensuring cost of living flows remain acceptable in order to massage expansion – they each carry a trade-weighted agenda necessary to reign in their respective bottom line estimates, & this is in turn, causing conflict on the currency (& related) arena’s……….. however, although traders pore over & digest these variables when assessing position expectations & trade profit potential – that’s not what drives price extremes……it’s “the effects of the ongoing series of data flows/numbers” which trigger bets…..and “emotion” is the instigator of all bet executions!! eventually, all the various pieces of the puzzle will begin to fit into place, but that could take a while to zoom in on the focus button – in the meantime traders will ‘react’ to what they see & hear NOW!!….and right now, all they see is Dollar negativity….. the Fed are supposedly nearing the end of a series of 16 straight rate increases….they’re trying to curb inflationary concerns, whilst balancing the potential for continued internal expansion….during this phase of hikes, the buck remained at the top of the pile…..it was due to it’s superior rate differential over the other majors, and whilst the Eurozone/Far East & the UK kept rates either on hold or in reverse, the respective bias was $ positive………. now that Europe/Far East & UK internal economies are stepping up their expansion portfolio’s, rates are on the front burner….this means they’re likely to increase in order to temper the expected inflationary concerns now facing the non-U.S business sector……… this will impact on the gap between the international rate balance….favoring a non-dollar bias in terms of investment holdings……… Japanese & Chinese trade is increasing…..also too, their economic expansion levels…..in order to control these inflationary tigers, rates will need to to be raised….this is where the fear factor surfaces for the Dollar….. it loses it’s muscle as the premier lynchpin in international currency circles, and large holders of $ demonitated assets (including the actual currency), become restless, as their investment holdings become diluted……… which is why we experience rapid & aggressive price movements in currency pairs/cross rates/gold & precious metals etc…….everyone & his budgie begins to unwind dollars & ship into the emerging currencies and/or safe hedging instruments….to offset the falling buck & profit reductions! obviously, folks don’t tend to form an oderly queue lol….rather, they move like sheep & bolt for the green pastures all at once!…..hence these manic 5-10c thrusts thru the technical levels, with very little regard for the respectful & resisting technical guides/indicators/level barriers (call them what you will)…. these types of trading conditions are classic examples of the ‘fear & greed’ symbols so regularly referred to within trading circles…..folks don’t want to “miss the boat”……so price zips along until eventually it exhausts & grinds to a halt….. that won’t happen until the picture becomes clearer….and the picture revolves around who controls the interest rate pot!! That then filters out to the secondary vehicles (deficits-retail sales-import/export variables etc)…..if the States begins to pause to allow the data to determine it’s next move, and the rest decide to hike because their internals say so – then the dollar will contine to be pressured…… if the rest hold off raising & the States return to a policy of hiking in order to tame the inflation beast, the dollar will regain ground………. RATES rooool the rooooost…….period! in amongst that major dish, will come all the rhetoric, jawboning,mind games, silly tittle tattle & all the peripheral nonsense associated with big boy’s playing with their toy’s…..BUT, unfortunately, all that guff comes with the territory, and traders (unfortunately) due to their nature & personalities, run along with it!! in order that we progress & take advantage of these changes in market conditions, it’s essential to utilize the correct tools (strategies) to do the job…..sure, opportunites will continue to present themselves, how we adapt to those opportunities will determine the effects on both our physical trading accounts & our psychological presence in the markets…….. these aren’t particularly periods to avoid or fear, rather to approach with a slightly different slant on previous market activity…..just as we do when price is mired within tight or indiscriminate range barriers, step back & think about who is driving this market (the primary players?) & what their aims or intent is?…..that aspect of the equasion doesn’t change at all – only our perception of how to navigate thru it!!