Seemed like every week was a ‘green candle’ (up week), and every month was a guaranteed winner for a while there. The investors/traders(?) who for whatever reason were buying each and every dip in the market were being rewarded in spades. It felt like a ‘one way’ market — UP.

That has all changed now.

The market has been straining and creaking lately with the most obvious signs the wild swings in volatility. At one point, today, during the most vicious part of the sell-off, at least a few of the more popular retail trading platforms upped the margin requirements for holding futures positions intra-day.

So what did that mean? It meant that the volatility was too great for the futures broker to feel comfortable letting traders hold ‘normal’ amounts of leverage in their positions.

In fact, the plunge today was recorded as the second largest on record — ever — and it came midday with a total collapse of the bid (anyone who was willing to buy), and after a brief, eye-watering plunge over 100 points down on the s&P and 1000 points down on the dow, snapped back up to just an ‘ordinary’ 3%+ down day.

So, that washed out the weak hands and we’re ready to move higher again, right?

I don’t think so.

As tempting as it might be for those who are bullish the US stock market to think that it’s safe to go back in the water, I would caution that extreme volatility like we’ve seen the last few days is really not the sign of a healthy bull market. It is the sign of what happens at the end of bull markets and at the end of bullish retracements within a larger bear market trend.

It was hard to watch the market action this afternoon and not think that there was a higher power at work providing liquidity to the markets through a favored son (cough cough JP Morgan).

Tinfoil aside, at this point the long held belief that the EU was in deeper doo-doo than even the US is starting to make its way into mainstream consciousness. Despite the attempts to play this decline today off as a glitch at a trading house, or an errant ‘fat fingered’ trade, even a cursory glance at the forex markets would tell you that that is utter b.s.

Huge unwinds were taking place where the Euro was down over 5% against the yen and over 2% against the USD! In one day!

That kind of violence puts anyone with any sort of leverage whatsoever completely out of a trade as even a 20:1 gearing would have your account blown up completely in one trading day (!) And forex is a domain where 50:1 and 100:1 are more the norm.

Anyways, good luck if you are crazy enough to attempt to trade anywhere in and around this kind of violence, and remember, when volatility is infinite, even 1% leverage will get your account zero’ed in a hearbeat.

The sterling is managing to hold its gains in forex trading on the currency market today.

The forex trading, U.S. dollar, Fujii, stock market, risk trade”
U.K. pound has been wavering due to economic data coming out of Great Britain. However, the pound sterling is managing to maintain it’s price in the usd/gbp pair due to USD weakness.

Indeed, a flagging u.s. dollar against the JPY & Euro zone currencies continues this week.

Comments from Japanese minister Fujii are creating issues, while European jawboning hasn’t helped the dollar.

The strength in the pound and the ‘risk trade’ is continuing as the stock market surges and investors seek alpha.

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The U.S. dollar is weakening in currency trading on the FX market as economic news comes in from a variety of corners. Of particular interest right now is the fact that China is saying that it will hit its yearly economic growth goal.

So far, China claims, its economy has gown 7% this year. The target of 8% was set earlier this year, and it is no surprise that the Chinese are strictly adhering to the rhetoric that the goal of 8% economic growth will be met by the end of the year.

Also of interest to the U.S. dollar is the fact that Federal Reserve Chair Ben Bernanke has been avoiding monetary policy talk. His speech yesterday in San Francisco did not mention it. However, there are hopes that he will address the subject today.

Bernanke’s take on the economy is becoming increasingly important, as some analysts, notably those at Barrons, claim that the U.S. economy is in a position to handle 2% interest rates, and that it is time to hike. The Fed has indicated dovishness in the past, so it will be interesting to see if Bernanke responds to this challenge.

See Also

• U.S. Dollar in Currency Trading
  The economic calendar and currency trading on the FX market

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September retail sales data is in for the United States, and it appears as though there has been an overall decrease. However, it is worth noting that, if auto sales are taken out of the picture, forex trading, euro forex trading, U.S. dollar, economy, economic data, forex, greenback”>retail sales were actually up.

Clearly, Cash for Clunkers had a great deal to do with how well retail sales did overall in August. Without the program, it appears that auto dealers are suffering a bit. However, the news that retail sales without autos are up. It means that other consumer spending may be on the rise.

The news hasn’t done much in the way of helping the U.S. dollar, however. forex trading, euro forex trading, U.S. dollar, economy, economic data, forex, greenback”>Yesterday the euro moved higher, and it appears that today will continue the rally for the euro in forex trading against the greenback.

See Also

• Economic Data and the U.S. Dollar
  forex trading news and information

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as reported by Jamie Saettele
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Tthe EURUSD has traded to a new high for 2009 and focus is now on the top of the channel from early July (5th wave channel, more on that below), which is at 1.5002 (on 10/14).

For a topping pattern to be in play the eur/usd would have to dip below 1.4670. The eur/usd has been channeling since July and suggests the current count is correct. So, a push over 1.4847 is likely wave of 5 of v of C. Again, the channel top is 1.5002 today and increases about 11 pips per day.

Jamie wrote yesterday that “an objective remains 1.5300 (just above the 161.8% extension) but a corrective rally may delay a decline to that level. In any case, a bearish bias is warranted against the line extended from the September and October 8th highs.”

This far, the line has held. Weakness in a larger 3rd wave remains possible with price below 1.6125. Your tactic can be to maintain a smallish position in the event that this happens. Potential shorter period supports are in place at price points: 1.5880, 1.5840, and 1.5825.Pressure remains on the US dollar but the New Zealand Dollar is actually the weakest of the major currencies right today. A EURu.s. dollar resistance line is at…
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