China Backs US Dollar (For Now)

The latest bout of will they/ won’t they? politics saw China back the US Dollar as the “most important and major reserve currency of the day and for many years to come.”

I’m not going to be at my screens for much of today so trading will be kept to a minimum. As things stand I’m running short positions in the Dax (^GDAXI), Lloyds (LLOY.L) and Barclays (BARC.L).

I’m fairly relaxed in my short Dax position though some traders expect the US to lead a bounce later today. I’ve set a limit order to increase my short just in case the Dax rallies to test the 21-day MAV at 4870.

My decision to sell Barclays was one of those characteristic moments when I decided to trade in the face of the technical position. My view was the same long-running opinion that there’s more downside to come for UK banks. The trigger was a rally up to, but a failure to push through, the 300p barrier.

The subsequent price action suggests that, at best, I was in too much of a hurry, and at worst I got the move plain wrong. On Friday I expressed a slight concern that the 21-day moving average was sloping upwards. Now I’ve noticed that the Trading Edge is pointing out a bullish MACD crossover. I’m going to hold off further sell bets on this one until I get a more bearish signal; possibly a break above 300p but a failure to hold that level. I’m keeping a stop at 330p, about 10p above the previous spike higher.
What to make of currencies at the moment? This week sees the latest in the series of global freebies as the G8 leaders discuss the economic outlook over spaghetti and Chianti. Despite China’s latest pro-Dollar comments any further rumours on the need for a new reserve currency will test the Dollar’s recent strength. From a technical point of view Sterling has looked vulnerable from the minute it set a new 2009 above $1.67.

Since then the GBPUSD has fallen on 4 consecutive days, dropping below the shorter trend line and the 21-day moving average. On the plus point the RSI remains above 50 and the longer term trends are still intact. It’s harder to trade an economic view through the currency market; most economies are deep in the brown, smelly stuff so the trick is working out who’s problem is the latest fashion. Will today see a break of the $1.62-66 range?
Last week I wrote about the Myth of UK Employment numbers and how firms were keeping workers on the books but with different schemes lowering their earnings. The weekend Telegraph highlights the latest example where BT is asking workers to take a year off on a quarter of their normal pay. Those that accept won’t be unemployed, but will be more likely to shop in Lidl than M&S. And I haven’t seen the small print but wonder if all those workers will be able to claim higher Working Tax credits, further compounding the benefits paid/ tax received imbalance I mentioned in How to Trade The UK Employment Myth.

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