Forexology

The first actual "tradeable" week of 2010 has just passed us and we have seen a mixed bag of opinions and projections. Though this has primarily been with the whipsawed sentiments with regards to the USD, i feel that this is the first month of data/results which is inline with my common projection/expectations for the year 2010.

The common dichotomy that caused this apparent confusion is the short term sightedness of the market looking at the recent rally during the last quarter of last year and that before which.  Here are some common articles which clearly surround the demise of the dollar;

• "The Demise Of The Dollar" (The Independent)
• "The growing international chorus wants the dollar replaced... a move that would end the greenback's six-decades of global dominance." (Washington Post)
• "No End In Sight to Greenback's Misery. History tells us that the dollar shouldn't start rising until 12 months after the Fed starts to lift rates." (Bloomberg)

And within such short notice, of less than 3 months of continued positive, (there has been no continued positive news bearers beyond expectations for the last 3 months,  which reflects the resolution of the trend change and how easily market forces can lose bearings) the market tends to beat the drums of the USD recovery.

However, a glance off the USD Index chart shows us otherwise, quite visibly;



In fact, just prior to the news release of Non-Farm Payroll report on 8th Jan, Ashraf Laidi in quotes;

"CFTC figures on speculative FX futures showed net JPY shorts (vs. USD) rose to -14,903 contracts in Dec 29th from a net short position of -1,011 on Dec 22nd. Meanwhile, EUR net shorts (vs. USD) soared to -33,797 contracts from -14,327 contracts in Dec 22. Current EUR net short positioning is the largest since the record net shorts of -40,654 contracts reached in mid September 2008."

It heavily symbolizes the market's opinion prior to the release. However, it wasn't to be and the market was disappointed with negative numbers well into double digits nearing -100k at -84k. Positive unemployment rate helped stabilize the immediate onslaught. However, what happened the last week might pretty much set the tone for the rest of the year. Let's take a look at what happened last week;

Gbp - -0.63%
Eur - +0.57%
Yen - +0.28%
Chf - +1.05%
Cad - +1.62%
Aud - +2.78%
Nzd - +1.55%
Gold - +3.61%

The obvious messengers  of risk appetite returning, with gold, Aud and Nzd, are well into positive territory.

Unlike the NFP induced speculative movements, there was constant gains reported with Aud and Gold, with both being in high correlation, over the last week. Gains in gold have broken 5 week trend and have moved above the 50 MA since Dec 17th.



What is upcoming in the new week is key data from Canada, Europe and Australia.  Let us see how these shapes out.