In global equity trade on Monday the sell-off in stocks lead to China losing the most value, with around 2.65% of losses recorded, while the Nikkei and HSI closed around 2% lower. Meanwhile, S&P futures traded into new twelve day lows, with the latest bottom test in at 1035.60.

During that time, the U.S. dollar moved higher against the major pairs, all expect the Japanese yen after the Usd/Jpy traded sharply lower, into the 88.40 zone.

Once the European session opened, the German Dax bucked the trend and moved higher, up to test the 5644 top, just before the turning point appeared and pushed the prices to a new 5554 near-term low. Interestingly; while the DAX was trading sharply lower from 5644 top to 5554 low, the U.S. dollar did not follow in the same percentage moves as seen earlier.

Now that the German market has once again reversed, and taken back the high ground, the dollar looks lost. Eur/Usd prices stayed well above the 1.4561 lows, which were established during the Asia session.

The reason for the reaction seems to be very simple, and quite surprising considering how the markets have traded for the last six months. The dollar is over-bought on the smaller time-frame charts, after the gains that were shown at the end of the past week. As such, traders look to be waiting to buy the dollar from a test of resistance, rather than adding to near-term positions with already over-bought reads.

"In the near-term, the Eur/Usd will likely to be searching for resistance tests in the next few sessions, but on a medium-term the U.S. dollar will likely to gain", said Grega Horvat, Snr Currency Strategist at TheLFB.

The euro has broken through the 1.4610 support area in the past sessions, as expected. Traders however, should be very careful with the dollar long positions from the current price area as wave I) may just be completed. If this is the case then a long-euro corrective pull-back into wave II) should follow over the next few sessions. Wave two is a corrective wave, and as such, we will be looking for three waves of retrace near to 50-61.8% of wave I) distance, before the market gets even more bearish. Meanwhile, the 1.4845 top must hold, otherwise we will be looking for a new wave count.

Wheel-Spinning Majors

The markets are diverging on Monday, with global equities having weathered a drop to support and reversed higher, including the Japanese Nikkei breaking 10,000 and reversing back higher. However that move has not lead to U.S. dollar selling to the degree that there was dollar buying as equities made their initial moves lower.

The major pairs are back to their opening prices, but would have been expected to have moved higher against the dollar after such a show of buying interest from the stock market. In all, a session of light volume, low momentum, and weak sentiment, at the start of a week that is quiet economically, but builds into a crescendo from Wednesday onwards.

Aussie and cad look bullish against the U.S. dollar, but still have a big move to make to break new ground that will instigate increasing orders hitting the market. The other major pairs are wheel spinning, and in reality, are getting nowhere fast.

In the run-up to month end the path of least resistance in equities is to lean towards some window dressing, the raising of bids on stocks that creates a better month-end valuation to an open investment book. There really does not seem to be any other reason for the interest in taking equities up to test 1060 on the S&P. It is what it is, the question is whether it can now hold.