S&P 500, EURUSD, AUDUSD Talking Points:
- Despite Monday’s broad and inspired risk appetite rally, conviction fell apart this past session even with fundamental tail winds and the S&P 500 break
- Just as the benchmark US index turned its bearish breakdown into a false break–reversal last week, this week’s bullish 2,940 break has fallen apart
- A combo of coronavirus vaccine headlines, central banker optimism and fresh EU stimulus have lost traction as readily as recession momentum and trade wars
Risk Trends Lose Traction Yet Again
It was difficult to miss the momentum behind risk appetite trends to open this week. The gap on Monday’s open with a measurable follow through was not just a picture painted by the US indices but a broad range of speculative assets. With that, it seemed that sentiment had shifted to a clear bullish momentum with the S&P 500 standing in as a benchmark for that enthusiasm. Yet, just as quickly as that conviction showed up, it seemed to fall apart. This past session, the leading speculative US index stalled immediately above the double top and 61.8 percent Fibonacci resistance combo around 2,940. For many other benchmarks (the Dow, EEM emerging market ETF, HYG junk bond ETF, DAX index, etc), the veneer of a break wouldn’t even register. A false break reversal scenario shouldn’t be particularly surprising to anyone. We had the same happen last week for the US index just on the opposite end of the speculative scale. Further, there were numerous examples of similar failures at liftoff over the past few months.
Chart of S&P 500 with 100 and 200-Day Moving Average (Daily)
Chart Created on Tradingview Platform
In general, market conditions do not seem particularly supportive of breakouts with follow through – much less full blown trend development. Market conditions, willingness to build upon a trend, can dictate how speculative interests interact with key fundamental events or technical milestones. If there is no traction to be found for momentum, the combination of Fed Chair Powell’s optimism, news of Moderna’s coronavirus trials and the EU’s greenlight of joint bonds to fund a 500 billion euro stimulus program (Monday’s mix) will lose traction. Similarly, a multi-week technical break like the one secured by the S&P 500 will find no fuel to burn. With that consideration in mind, I asked Twitter denizens what they expected from the benchmark before week’s end. Despite our proximity to the 200-day moving average and psychological 3,000 level, only 25 percent believe we will end the week above the milestone.
Twitter Poll on S&P 500 Ability to Overtake 3,000
Poll from Twitter.com, @JohnKicklighter
The Loud Siren Call of Technical Breaks
A view on the market’s ability to spur range to break to trend is crucial first step when you evaluate any meaningful technical moves – whether they are backed by fundamentals or not. This past session, a number of notable breaks were registered on my regular charts. A range of emerging market currency-Dollar pairs secured technical bearish breaks including USDMXN, USDZAR and USDRUB. With genuine risk appetite, that may have evolved into something more meaningful, but that potential didn’t show through on Tuesday. Perhaps one of the most noteworthy technical moves was attempted by AUDUSD which advanced above a trendline dating back to late January and a combination 100-day moving average.
| Change in | Longs | Shorts | OI |
| Daily | 7% | 1% | 5% |
| Weekly | 10% | -28% | 0% |
Chart of AUDUSD with 100-Day ATR (Daily)
Chart Created on Tradingview Platform
If we are unable to convert trends, then it stands to reason that congestion is the default mode. That can spur false breakout reversals like the tentative shift from the S&P 500 – or the confirmed-by-time transitions from the same index last week, DAX, FTSE 100 and more over previous weeks. However, most traders are more comfortable in seeing turns with technical boundaries still standing. Though another jolt of volatility may undermine such chart barriers, there are still a number of pairs and markets that are still bound by their borders. NZDUSD and USDCAD are a few such pairs.
| Change in | Longs | Shorts | OI |
| Daily | 3% | -1% | 2% |
| Weekly | -1% | -18% | -7% |
Chart of NZDUSD with 200-Day Moving Average (Daily)
Chart Created on Tradingview Platform
As far as failed fundamental and technical potential go, there are few more indicative measures than the Euro. On Monday, German and French officials made the historic announcement that they saw eye-to-eye on joint debt issuance to fund a massive stimulus program. If we rolled back the clock 10 years ago, that additional stimulus could have weighed the shared currency but more recently the lever to growth has been treated as a source of strength. And yet, an equally-weighted measure of the Euro offered up an uneven picture. With EURJPY, the combination of the Euro’s appeal and the risk-lean of Yen crosses would represent the convergence of various fundamental influences. Carry managed to defy gravity, so the two-day rally was out of trend.
Chart of EURJPY with 200-Day Moving Average (Daily)
Chart Created on Tradingview Platform
As for the world’s most liquid currency pair, the range conditions would confirm to its nature of the past months. The combination of the 100-day moving average, wedge resistance and Fib resistance at 1.0960 withstood strong investor sentiment readings from Germany and the Eurozone (ZEW). Those same circumstances will likely hold in the upcoming session on the FOMC minutes and Eurozone consumer confidence – especially with the global PMIs just a little further out.
| Change in | Longs | Shorts | OI |
| Daily | 1% | 5% | 2% |
| Weekly | 5% | -16% | -2% |
Chart of EURUSD with 100-Day Moving Average ( Daily)
Chart Created on Tradingview Platform
If you want to download my Manic-Crisis calendar, you can find the updated file here.
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