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US Dollar Vulnerable to Pullback if S&P 500 Corrects Higher

US Dollar Vulnerable to Pullback if S&P 500 Corrects Higher

2011-08-09 04:48:00
Ilya Spivak, Head Strategist, APAC
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THE TAKEAWAYThe US Dollar may pull back as S&P 500 positioning gets increasingly oversold, threatening a corrective bounce that weighs on the safe-haven currency.

S&P 500 – Last week, prices confirmed a major Head and Shoulders topchart formationwe began to monitor five weeks ago and slipped below rising trend line support established from the post-Great Recession low in March 2009. Prices are now testing 76.4% Fibonacci retracement support at 1095.42, with a break lower exposing the 1008.10-1053.70 region. Deeply oversold RSI warns that a pullback may materialize before the larger decline unfolds. Near-term resistance stands at 1149.00, the 61.8% level.

US_Dollar_Vulnerable_to_Pullback_if_SP_500_Corrects_Higher_body_Picture_5.png, US Dollar Vulnerable to Pullback if S&P 500 Corrects Higher

CRUDE OIL Prices are testing major support at $75.46, the 50% Fibonacci retracement of the rally from the major post-crisis March 2009 low. As with the S&P 500, increasingly oversold RSI readings point toward the possibility of a bounce before the larger down move resumes. Initial resistance lines up at $84.72. With that in mind, overt signs of reversal remain absent for the time being.

US_Dollar_Vulnerable_to_Pullback_if_SP_500_Corrects_Higher_body_Picture_6.png, US Dollar Vulnerable to Pullback if S&P 500 Corrects Higher

GOLD Prices are testing above the Fibonacci extension measured target at $1745.97 implied by the advance from the late January low and subsequent May-July retracement. While the momentum behind the move higher is undeniable, increasingly overbought RSI readings warn that a sharp pullback may be in store, although no actionable evidence of such an outcome in the near term is apparent for now. A break above $1745.97 exposes the $1800/oz figure, followed by the 123.6% level at $1809.27. The $1700 figure is now near-term support.

US_Dollar_Vulnerable_to_Pullback_if_SP_500_Corrects_Higher_body_Picture_7.png, US Dollar Vulnerable to Pullback if S&P 500 Corrects Higher

US DOLLAR Prices continue testing resistance at a falling trend line set from late May. A pullback seems likely given the overstretched positioning in benchmark risky assets (S&P 500, crude oil – see above), with support still found in the 9508-51 region. Alternatively, a beak higher exposes the triple top in the 9714-64 area.

US_Dollar_Vulnerable_to_Pullback_if_SP_500_Corrects_Higher_body_Picture_8.png, US Dollar Vulnerable to Pullback if S&P 500 Corrects Higher

Created Using FXCM Marketscope 2.0

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