Forex Pairs Absorb Equity Momentum

The strong moves that the currency market pulled on Friday forced the major pairs to change the near-term 4-Hour chart trend reads from long against the Usd, to short, and did it it in very quick time.

More importantly, it forced the Aud and the Cad to lose some of the ground gained recently, and return some of the pips gained on the Usd as the two currencies that were the strongest against the greenback over the last six months of trading.

Currency trading over the last two weeks had been volatile in sentiment, yet price action has been contained in tight intra-day ranges. The has market swung from risk-aversion to tolerance as investors priced in the latest fundamental data coming from the Euro-area (read Greece), and from Goldman Sachs/SEC.

Add in rumblings at the weekend that Dubai World (remember the December headlines that threatened default on sovereign debt?) may yet still have fiscal challenges, and the mood has justification in changing.

As most traders know, risk aversion is a strong stimulant for the Usd and for the Japanese yen, so favoring long positions on pull-backs could be a good strategy, if equity and commodity markets drop lower as this week unfolds.

European equities and U.S. futures stood still overnight, after the initial pre-market Asian and European drops could not be added to, with investors now waiting for additional data regarding GS's investigations.

It is said that there may be more transactions from GS and possibly from other banks that may yet come under SEC scrutiny; meaning that the worst of the headlines may be yet to come.

The financial sector is under close scrutiny, and any negative news report will be amplified in regard to initial reactions, and this has the potential to drag the global risk market lower with it, as healthy year-to-date profits are banked.

Investors will now stay focused on the U.S. open, especially on the cash equity market. A failure to find support at 1175 on the S/P, and then to hold at 1165, will drag the commodity and currency market lower with it, extending the time that the market stays in risk-aversion mode, and increasing the allure of the Usd.

For more info on SoftroomFX recommended broker, go to http://www.fxprimus.com