Dollar Comes Back

The US dollar is recovering from the earlier QE and G7 speculation.   The dollar's price action is a bit like a beach ball brought underwater.   Even if I am wrong about QE (that it is unlikely), the fact of the matter is that China, Australia, the ECB and the BOE will respond before the Federal Reserve.  

In addition, while the US employment data adds a new twist, the overriding factor for investors remains the existential crisis in Europe.  The distinction between urgent and important is key.  The US is important, but Europe is urgent.  

The euro spiked just above $1.2450 and that high, I suspect is important,.  Sterling peaked just shy of $1.5450 and that area, which extends to $1.5470 is also important.  Only a close above those levels would negate my bearish outlook.  

The yen, as an old boss told me, is the graveyard of all good traders (and I can attest it is the graveyard of mediocre traders too).   Many deaths today as the dollar recorded its session low and high within a half hour.  There was some suspicions that the BOJ intervened earlier.  Yet sometimes the market acts like that child's game of telephone.  It turns out that a couple of dealers reported that the BOJ checked prices.  

If the BOJ checked prices, it means that it was not intervening.  Typically, in the the past intervention was not preceded by a check of prices.  Moreover, I continue to argue the BOJ is not about to intervene.  The move is fundamental and not about the yen.  

In addition the dollar-yen intervention has most recently taken place when the dollar was nearer its record lows.  Intervention on euro-yen is possible, but very rare.   And if the track record of dollar-yen intervention leaves something to be desired, the BOJ cannot hope to stand against the flood of funds leaving Europe.    

Also, remember the UK market, which is by far the largest fx center, is closed Monday and Tuesday next week.  Today is the most liquid the fx market will be ahead of the ECB meeting next Wednesday.   This schedule seems to be conducive for a bout of range trading for the rest of the session and into Monday.   

The danger in this environment is that short-term traders over trade and get chopped up waiting for a new trend move.  Some times it is the trade we did not do which is our best trade.