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S&P 500, Dollar Outlook Unfazed by US Credit Rating Downgrade

S&P 500, Dollar Outlook Unfazed by US Credit Rating Downgrade

2011-08-08 06:11:00
Ilya Spivak, Head Strategist, APAC
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THE TAKEAWAYThe implications of a major S&P 500 top – a boon for the safe-haven US Dollar – remain unchanged after a surprise downgrade of the US sovereign credit rating.

S&P 500 – Last week, prices confirmed a major Head and Shoulders top chart formation we began to monitor five weeks ago, pointing toward a decline to a measured target at 1115.90. We also note that the aggressive decline has taken out the rising trend line established from the post-Great Recession low in March 2009, pointing to secular bearish trend reversal in progress. Near-term, Fibonacci retracement support has been met at 1167.90, with a bounce to relieve oversold conditions likely toward initial resistance at 1207.60 before the larger selloff resumes.

SP_500_Dollar_Outlook_Unfazed_by_US_Credit_Rating_Downgrade_body_Picture_5.png, S&P 500, Dollar Outlook Unfazed by US Credit Rating Downgrade

CRUDE OIL Prices broke below support at the bottom of a long-term rising channel set from the March 2009 low set in the aftermath of the 2008 financial crisis, mirroring the bearish reversal seen in the S&P 500 (see above). As with the benchmark equity index, a bounce to relieve increasingly oversold conditions seems reasonable in the near term. Near-term Fibonacci resistance lines up at $90.88. Alternatively, a sustained break through current support at $85.25 exposes $78.29.

SP_500_Dollar_Outlook_Unfazed_by_US_Credit_Rating_Downgrade_body_Picture_6.png, S&P 500, Dollar Outlook Unfazed by US Credit Rating Downgrade

GOLD Prices gapped above major resistance at a rising channel top in place since mid-May 2010 and the 76.4% Fibonacci extension level ($1682.67), pointing to acceleration in the uptrend and exposing the measured target at $1745.97. With that in mind, signs of negative RSI divergence warn that bullish momentum is waning and a blow-off top may be in progress. With that in mind, no confirmation of reversal is evident at the moment. The $1682.67 level has been recast as near-term support.

SP_500_Dollar_Outlook_Unfazed_by_US_Credit_Rating_Downgrade_body_Picture_7.png, S&P 500, Dollar Outlook Unfazed by US Credit Rating Downgrade

US DOLLAR As we suspected last week, prices pulled back from trend line resistance that previously served as the top of falling channel connecting major highs since late July, finding support in the 9508-9551 region. Further weakness cannot be ruled out at this point as the S&P 500 corrects higher to weigh on the safe-haven currency, but the double bottom at 9336 remains in place and argues for a broadly bullish bias. Trend line resistance is now at 9625, while the outer layer of support remains at 9508.

SP_500_Dollar_Outlook_Unfazed_by_US_Credit_Rating_Downgrade_body_Picture_8.png, S&P 500, Dollar Outlook Unfazed by US Credit Rating Downgrade

Created Using FXCM Marketscope 2.0

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