Forex Signals

Trading Strategy - Pre-trading shorts?

The SEC rule change on short-selling forces speculators to borrow shares before shorting them. This all but eliminates day-trading on the short side. Seems likely to be viewed a positive for a bear market but like all rules the unintended consequence will be to eliminate liquidity in shares just as the market wants it and the short-squeeze will be less dramatic. While calming markets down is the first order of business that Bernanke made clear in his testimony – the second order is inflation and today’s US CPI will be key in allowing all the other things that need to be fixed the key ingredient – time. FX markets actually took center stage overnight – with both CHF and JPY gaining again – but not purely against the USD. The article in the WSJ coupled with the CPI reports today show that Europe suffers as much as the US. The failure in Spain of the biggest real estate developer should be a wakeup call for the EU. Further ECB hikes due to inflation targets will be meeting more resistance from politicians. Bernanke won’t be alone in his rock or hard place dilemma. The US data today may actually help stabilize the market more than any new regulation - first the TIC data may show that the world still puts money into the US enough to finance its deficits, second the IP data may not be horrible enough to show a clear recession in manufacturing, third Congress may be able to support Bernanke in his second round testimony by suggesting more stimulus. Overall, the bears should be a bit worried today – and that may be good for the USD but better for the crosses. Key for USD will be 103.70 JPY – the voodoo of the cloud point, but more interest overnight in EUR/CHF and EUR/JPY may be the driver linked to equities. With oil down, gold down, the USD may hold well in a dull range allowing some respite from the volatility that destroyed risk-taking over the last week.

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