S&P 500, Dollar Outlook Unfazed by US Credit Rating Downgrade
THE TAKEAWAY – The 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.
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.
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.
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.
Created Using FXCM Marketscope 2.0
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