Forex Trading - Market Update

Stock Market - Up or Down?
Yes, this is a blog focused on the FX market, not the stock market. So why do I bring equities up? There's a strong correlation between movements in the S&P 500 and currencies like the Aussie and Kiwi against the U.S. Dollar. For example, if the U.S. equity markets were to capitulate tomorrow over fears of the U.S. debt ceiling then the Aussie and Kiwi would most likely depreciate sharply against safe haven currencies such as the U.S. Dollar and Japanese Yen.

The equity markets were down today, but in the general scheme of things they have continued to grind higher. There are many pessimistic views about the market that are elaborately laid out, but the reality of the situation is that most of the people who call tops and bottoms get hurt. When it comes to U.S. stocks we're clearly in a bull market. Now, could stocks go down tomorrow and continue going down for the next 3 months? Sure. But as of right now, we're in a bull market. U.S. Stocks have been pushing higher since March 2009 - almost 4 years ago.

Not being able to define the current state of the market for what it really is because of a bias - be it from an open position or a personal opinion about the "true" economic health of a country/region can be a huge detriment to your trading. So that said, let me again repeat - we're in a bull market.

FX Market Update
The USD was sold today (and on Friday) after making some significant progress last week. See the Ice dollar index here, and the more properly weighted WSJ dollar index here. As we previously noted, we attribute the recent USD strength to the hawkish FOMC minutes that were recently released. The main reason that the USD weakened on Friday was that the unemployment rate increased, a "negative" for the probability of QE ending sooner rather than later.

That said, the idea of QE ending has been flashing across media headlines and the concept of QE ending can not be stuffed back into a box. Look for the monthly unemployment numbers to have a significant impact on markets. The weekly numbers will probably have more of an impact as well - we advise being mindful of the Unemployment Claims on Thursday - Exp: 361, Previous: 372