International Forex Inforamtion

Forex Ultimate Hedge Plays

The S&P/Eur correlation will be there while the global business cycle is not showing expansion, and using that correlation to trade, or hedge the S&P while the NYSE is closed, can be done in forex. If a trader expected a drop in the S&P, they could open a position in SDS, for example, the Ultra-Short S&P500 ETF, that trades on the NYSE.

The majority of forex flows comes outside of the U.S., and as such any position in SDS is likely to have moves building while the U.S. cash market is closed. As such, using the correlated moves in Eur/Usd as a play to either hedge investment portfolios, or to play the momentum in S&P without the market being open, is an option.

Finding correlated price action in a futures market is a benefit, if the market your investment vehicle is bought and sold in is closed, (S&P Futures move virtually 24 hours a day, while SDS trades for 7 and a half on the NYSE).

If price action is strong in the open market that will determine an assets value (SDS for example), how do you protect an open SDS position, in a closed NYSE market? Why not trade the market that is open, with a high correlation, even if it is just to hedge your other position?

The institutional use of forex is not in a leading indicator capacity, and as such the flows we see on our charts are created by the read on global risk tolerance in correlated markets. It always has been, and it always will be. It must make sense to hedge your investment portfolio with trades that are in a market that is actually open, if at all possible, and that is the beauty of using forex as it is designed; hedging forward commitments, or open positions.

Trade Plan of the Day: TheLFB Trade Plan is one of the six that are available to members on the major pairs each day, plus four Jpy based cross pairs, S&P futures, oil, gold, and the dollar index.

U.K. and Euro-zone 52.6% (01:00 EDT-11:00 EST). Asia 21.1%. (18:00 EDT-02:00 EST). U.S. 16.6% (07:00 EDT-16:00EDT). Overlap 9.7%.

The above is the International Bank for Settlement numbers that analyze the global flow of forex trade. It reveals that the European futures market open, from around 01:00 EDT through until the Chicago reversal at 07:00 EDT are the main times to expect sustainable moves, over the long run in forex, and by default, those moves are set by the direction of the global equity market, both futures and cash. There will be periods of change, but overall the reads are very reliable.

Forex is a commercial market, used to hedge forward commitments, and garner interest rate differentials. As such, it is a market that follows the moves in risk tolerance, or not, at any given time, as it shows itself in the correlated global market place.

Take a look at S&P and euro charts; euro has followed, not lead that move. S&P leads, Eur/Usd follows, and will hold that 85-90% correlation until global expansion hits the business cycle, and at that time it will drop to between 65-70%, as we have seen in forex cycles since 1979.

At that point, interest rate differentials will take over, and the central banking and commercial lending sector will hang their hats on Libor rates and Ted spreads. In the mean-time, trade the charts when the market is open, and hedge the position with 24 hour forex.

TheLFB Charting LinkTheLFB Charting: S&P Elliott Wave view
4 Hour chart trend: Long. Main price points: 1098.50, and 1015-1120. Looking for: Wave C
S&P futures traded lower into the 1080 – 1083 support zone as discussed and posted here yesterday, where traders may already be seeing some up-side reactions from the 38.2% Fibonacci test. The current wave count structure signals for a final push higher in wave V), which may find the top somewhere around the 1115-1120 zone, especially once the wave III) top at 1100 is taken out.
Overall, an expanding diagonal pattern in black wave 5, or the C position, does not look to be complete. Each leg of our expanding diagonal pattern should be structured by three waves, labeled as wave A, B and C. On the four hour chart below, the market is trading in the last leg of our pattern, wave 5), with an extended red wave C in process.