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Regional Asian markets sold off today and oil prices moved sharply higher as markets remained focused the situation in the Middle East / North Africa. Risk sentiment dropped overnight as news on MENA tensions including speculation of all out civil war in Libya, growing tensions in Saudi Arabia and reports that Saudi tanks are rolling into Bahrain all carried over into the Asian session reversing the recent rally in stock. The situation remains highly uncertain. EURCHF fell down to 1.2760 while USDJPY moved back to 81.90. Gold traded up to a new record high at $1,434.38 as Brent crude climbed to $116.76. Interestingly, the S&P is now sitting on the 6 month bullish trend support, a break a lower could trigger further downside. With all eyes now focused on events in MENA, yesterday’s strong PMI data were ignored. But to briefly recap – the number showed that the global recover was broadly on track. Even the US Federal Reserve Chairman Ben Bernanke told Congress that Tuesday failed to illicit any real market response. He stated that a prolonged rise in oil prices would pose a danger to the economy. Full article…

I have been focusing on longer-term time frames and the ranges on these charts because in my opinion, this time frame offers the ability to often stand above the fray of the intraday volatility and provide a clearer (more psychologically relevant) view of the trend. This has been especially the case with the recent happenings of Egypt and Libya effecting the market around the world.

The distribution fade is always an aggressive (“aggro”) entry. The fade which is an exhaustion play that set ups within the context of a volatile, sideways range is confirmed by prices reached at a level (narrow price range) or area (wider price range) of resistance (ceiling) or support (floor).

The distribution fade is called such because of the “two to four o’clock” angle the 34EMA Wave takes on when prices are indicating a lack of an organized up or down trend. Simultaneously, prices are not quiet and narrow-ranging enough to be consider a flat, “three o’clock” angle either.

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A pickup in US Dollar volatility expectations points to fast currency moves in the week ahead, favoring Breakout and Momentum trading strategies in key currency pairs.

DailyFX+ System Trading Signals – It was a solid week of performance for Breakout2 and Range2 trading strategies, while Momentum1 likewise posted respectable gains on key US Dollar pairs. The fact that systems of all three different trading styles held firm underlines recent market indecision. Volatility expectations continue to drop near their lowest levels since the onset of the financial crisis in 2008, and risks of large currency moves are low. That said, 1-week expectations have jumped noticeably ahead of key economic data and our strategy bias takes this into account on a per-currency basis.

To gain a greater understanding of all six trading systems, view my recent presentation on SSI and the trading signals on our FXCM Digital Expo page.

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Financial markets have their eyes focused squarely on Libya and the spillover effect into crude prices. While there are side plots of inflation, safe haven trades and the BoE surprise lean towards tightening – the main story remains oil. While Brent has rallied nearly $10 since the Asian open to $119.79 high, activity in FX markets remains subdued with 1-month implied vols continuing to creep about very low levels. Perhaps the main reason for the lack of a legitimate reaction is that the political turmoil has been isolated to small oil producers and not one of the major production centers (Saudi alone has the ability to increase supply by 4 million barrels per day easily covering Libya’s 1.5 barrel/day drop). However, protests are schedule to take place in Saudi Arabia today and tomorrow which will likely drive further oil volatility today. Considering the Saudi’s willingness to temporarily step in with extra supply – it’s too early be discussing a 1970-like supply side shock and how inflation and growth would be affected. Full article…

Relatively speaking, the Chinese Yuan has been on a tear, appreciating ~1% in a little more than a month. One has to wonder whether this is a concession by the People’s Bank of China (PBOC) that its exchange rate regime is not viable or whether its instead a political sop. The question on everyone’s minds, of course, is, will it continue?

Countries around the world have continued to criticize China for its unwillingness to allow the Yuan to appreciate. At last week’s G20 meeting, US Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke separately took aim. “They’re still heavily leaning against the forces trying to push their currency up,” complained Geithner. “The maintenance of undervalued currencies by some countries has contributed to a pattern of global spending that is unbalanced and unsustainable,” intimated Bernanke.

However, it was only when fellow emerging market economies – namely Brazil – voiced similar concerns, that China was finally forced to concede partial defeat.

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In the next two videos (five minute each) I explain my continued bearish stance on the U.S. Dollar. I’m open and frank about my positions that are relying on continued weakness or at least a flat dollar and where I will change my opinion about the negative sentiment.

There’s been a lot of talk about why the dollar “should” go up and my take has always been that by the time I hear it, it’s been “baked into the cake” aka already discounted.

That’s not to *dis* fundamentals. I simply feel that the rally from February 2 – 12 may have been when the fundamentals were moving the U.S. Dollar Index higher.

For those of you who are thinking “Raghee I’ve heard there will be a rate hike.” Well, watch the videos and see for yourself what the Fed Funds futures are reflecting and then ask yourself how realistic is a rate hike before October to December this year? I don’t feel we’ll see one until late this year or early next.

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