S&P 500, Dollar, EURUSD, USDCAD Talking Points:
- For some, the S&P 500’s clearance of 3,300 could qualify as a meaningful technical break of a large rising wedge, but is that enough for follow through?
- Anticipation around a US stimulus deal and Covid vaccine continue to feed hope, while the economic calendar has provided a clear growth update
- An extended Dollar slide tripped further technical signals for AUDUSD and USDCAD, but GBPUSD is still holding resistance ahead of the BOE
Another Nudge Higher from a Risk Leader that Tempts Conviction
For the third day in a row, risk assets edged higher, simultaneously urging speculative appetite while slowly undermining the already-lacking sense of conviction. For the majority of sentiment markers I like to follow, the past session was a low-boundary bounce in well established range. An exception was the S&P 500’s gap higher Wednesday. Technically, the jump cleared a rising wedge from March and essentially filled the gap that started the pandemic collapse. And yet, there remains an unmistakable lack of enthusiasm to amplify a break into a clear trend. So close to record highs, disappointed bulls can still be goaded higher; but sustaining lift is still a tall order.
Chart of S&P 500 with 50-Day Moving Average and 3-Day ATR Percentage of Spot (Daily)
Chart Created on Tradingview Platform
One measure I like to frequently reference when doing a sanity check on conviction is gold. The precious metal isn’t always a primed haven, but it rarely plays the role of a full-blown speculative pacer. Nevertheless, gold pushed a fresh record high as the S&P 500 daydreamed of its own. We could say this reflects a distortion for the commodity, but I believe it is more likely evidence that sentiment is brash speculation seeking momentum. That said, this androgynous asset is also being stretched in pure market performance terms. Gold is up 13 percent in 13 days which puts it in as heavily distended a position as we have seen over the past decade.
Chart of Gold Overlaid with S&P 500 and 20-Day Correlation, 10-Day Rate of Change (Daily)
Chart Created on Tradingview Platform
Stimulus and a Vaccine Still Play Better Hopes Than Boosters
As I’ve mentioned previously, it seems that there is as much enthusiasm (hope) built in anticipation of future improvements as there is tangible footing for bullish interests. US leaders have yet to find a compromise to offer fresh stimulus in replacement of the expired CARES Act. President Trump has said he would use an executive order to halt payroll taxes if Congress couldn’t settle a path, which suggests an infusion one way or the other. And yet, this expectation is likely priced into markets in their forward gaze, so it may prove hard to impress further lift.
Chart of US Economic Policy Uncertainty (Weekly)
Chart from Federal Reserve Economic Database
Alternatively, the rapt attention around the Covid vaccine chase is drawing plenty of hope for relief as well as speculative opportunism. Having seen Gilead and Kodak rise and fall as traders crowded in to take advantage of their drive for a breakthrough, we shifted first place back to Novavax. Here too, the practicality that an approved drug will then need mass production and distribution within a time frame where the severe impact of a forced recession can be fully absolved. When reality takes back over for hope, I believe there is more to disappoint than impress.
Twitter Poll: ‘What Do You Think is Driving the Dollar?’
Poll from Twitter.com, @JohnKicklighter Handle
A Range of Dollar Pairs on the Verge of a Break
Between the pressure of a steep pandemic curve and struggle for local stimulus, the return of bearish pressure around the Dollar draws little surprise. Where the ISM service sector report expanded further to help warm V-shaped recovery fantasies there was also a troubling ADP private payroll figure that fell far short of forecasts for 1.5 million jobs added in the month with just 167,000. That bodes poorly for Friday’s NFPs and can perhaps justify EURUSD’s rebound from 1.1700 former resistance-as-new-support. Yet, break leaning into progress looks to be the exception to the rule.
Chart of EURUSD with Net Speculative Futures Positioning (Daily)
Chart Created on Tradingview Platform
Another interesting technical break amid the Greenback slide would come on the behalf of USDCAD. The 1.3350/25 area we dropped through this past session has played a technical role for months. However, just beyond that threshold a much larger trendline support lingers around 1.3220. Even if we put pressure on that next line in the sand, I am reminding myself that few breaks are translating into ready trend as of late.
| Change in | Longs | Shorts | OI |
| Daily | -32% | -11% | -21% |
| Weekly | -22% | -3% | -12% |
Chart of USDCAD (Daily)
Chart Created on Tradingview Platform
Another ‘major’ that should draw close scrutiny heading into these final 48 hours of trade this week is GBPUSD. The pair didn’t make any earnest efforts to clear 1.3200 – a confluence of multi-year trendline resistance and high-level Fibonacci retracements – which comes as little surprise given the lack of Dollar conviction as well as the anticipation of Thursday’s Bank of England rate decision.
Chart of GBPUSD (Daily)
Chart Created on Tradingview Platform
The policy meeting in the UK is interesting not for the policy meeting itself. Indeed, it is unlikely that the group does anything extraordinary – though fresh stimulus to head off added recession pressure from fears of a rebound in the pandemic curve and thereby recession is not out of the question. More certain is the update on economic forecast that comes from the quarterly report. Watch it closely.
| Change in | Longs | Shorts | OI |
| Daily | -1% | -11% | -4% |
| Weekly | -5% | -3% | -4% |
GBPUSD Retail Speculative Positioning from IG
Chart from DailyFX
If you want to download my Manic-Crisis calendar, you can find the updated file here.
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