News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
Oil - US Crude
Bullish
Wall Street
Bearish
Gold
Bearish
GBP/USD
Bearish
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • The continuity seen across these volatility cycles is a good thing. Historical precedence offer a blueprint for identifying conditions supportive for a vol-event to occur, and how they may unfold. Deepen your knowledge of historical volatility here: https://t.co/vg7w10CKUR https://t.co/9JVh6BsWa2
  • There’s a strong correlation between interest rates and forex trading. Forex is ruled by many variables, but the interest rate of the currency is the fundamental factor that prevails above them all. Learn how interest rates impact currency markets here: https://t.co/J0EPMD2Cfi https://t.co/ZDuee58Abe
  • Many people are attracted to forex trading due to the amount of leverage that brokers provide. Leverage allows traders to gain more exposure in financial markets than what they are required to pay for. Learn about FX leverage here: https://t.co/BdgFmkRxVw https://t.co/niJL2W2yXV
  • GDP (Gross Domestic Product) economic data is deemed highly significant in the forex market. GDP figures are used as an indicator by fundamentalists to gauge the overall health and potential growth of a country. Learn use GDP data to your advantage here: https://t.co/Yl9vM7kO6a https://t.co/0rNbbrd58e
  • Traders utilize varying time frames to speculate in the forex market. The two most common are long- and short-term-time frames which transmits through to trend and trigger charts. Learn more about time-frame analysis here: https://t.co/9S5tXIs3SX https://t.co/zPzJAxBJxt
  • Emotions are often a key driving force behind FOMO. If left unchecked, they can lead traders to neglect trading plans and exceed comfortable levels of risk. Read on and get your emotions in check here: https://t.co/eILWbFgHRE https://t.co/uf6KEYTes5
  • There are three major forex trading sessions which comprise the 24-hour market: the London session, the US session and the Asian session. Learn about the characteristics of each session here: https://t.co/reRmDe1Ksp https://t.co/gRjdVfbg66
  • Implementing a trading checklist is a vital part of the trading process because it helps traders to stay disciplined, stick to the trading plan, and builds confidence. Learn how to stick to the plan, stay disciplined, and use a checklist here: https://t.co/SQUCCYRCIk https://t.co/mLLGqYUygY
  • Use this technical analysis pattern recognition skills test to sharpen your knowledge: https://t.co/Qgz89PTxnu https://t.co/HUYJzEkYiT
  • #Gold prices put in a major breakout last month and, so far, buyers have held the line. But a really big Fed meeting is on the calendar for this week. Can Gold bulls hold? Get your market update from @JStanleyFX here: https://t.co/NGRTSfceOW https://t.co/QkSUORIQE2
Dollar and S&P 500 Refuse Opposing Breaks, What Will Resolve This Tension?

Dollar and S&P 500 Refuse Opposing Breaks, What Will Resolve This Tension?

John Kicklighter, Chief Strategist

Dollar, EURUSD, S&P 500 Talking Points:

  • The Federal Reserve’s decision to trumpet its existing mix of monetary policy Wednesday showed far more impact – of disappointment – on SPX the following day
  • Risk benchmarks are seeking a systemic spark as volatility and an unsteady fundamental backdrop threaten to finally tip a trend
  • The EURUSD is nearing the end of a head-and-shoulders pattern, AUDUSD’s climb is slowing

The First Gap Down in 7 Days but Support Holds

The FOMC (Federal Open Market Committee) rate decision Wednesday afternoon resulted in a remarkably restrained move from US indices and other risk benchmarks. Yet, the implications of the world’s largest central bank reinforcing the cap on its steadily escalating support would exert another wave of risk aversion through this past session. It is important to remember that the US indices are just off of record highs despite the reality that we are still traversing the most intense recession since the Great Depression. With that kind of backdrop, it would come as little surprise that a steady feed of external motivation would be necessary to keep sentiment afloat – much less trending even higher. With that in mind, the S&P 500 put in for its first gap lower in 7 consecutive trading days. Despite the swoon, the 50-day moving average and range floor at 3,300 managed to hold. A break through the near-term is likely, but follow through likely depends on what systemic driver takes responsibility for the move.

Chart of S&P 500 with 50-Day Moving Average, Daily Gaps and 7-Day Rate of Change (Daily)

Dollar and S&P 500 Refuse Opposing Breaks, What Will Resolve This Tension?

Chart Created on Tradingview Platform

Looking across the spectrum of ‘risk assets’ I like to refer to when assessing market conviction, there was a similar lack of commitment with a host of gaps and general restriction to range. When I look for the development of trends across the financial system, a preferred measure is high correlation across liquid, leading speculative measures (SPX, DAX, EEM, USDJPY, etc) with a meaningful tempo. Correlation is still in place and volatility is boiling beneath the surface, but traction remains agonizingly absent. It is worth considering the concept of sentiment urging markets rather than defaulting to the guidance of a single asset. The Nasdaq 100 for example slipped its 50-day moving average with Thursday’s gap; but its correlation to other US indices suggests this is a false break anchored to the S&P 500’s indecision or the leading move for other assets to follow. What is more probable?

Chart of Nasdaq 100 with 50-Day Moving Average, NDX-SPX Ratio and Spot-50DMA Disparity (Daily)

Dollar and S&P 500 Refuse Opposing Breaks, What Will Resolve This Tension?

Chart Created on Tradingview Platform

Trends Develop Where Liquidity Meets Systemic Motivation

As we look forward to the final trading day of this week, the probabilities of jump-starting a serious trend will ebb. With eight days of range and clear technical boundaries, the fading hours of liquidity before the weekend will progressively cut into the necessary depth to spur a technical break to something more substantial. Nevertheless, it is worth recalling the seasonality picture on the higher scale. September is still a critical month for volatility while volume starts to rise later in the month – resulting in the only average loss in a month for the S&P 500 in a calendar year (according to data going back to 1980).

Table from Federal Reserve’s Summary of Economic Projections from September 2020 Meeting

Dollar and S&P 500 Refuse Opposing Breaks, What Will Resolve This Tension?

Table from Federal Reserve

For headlines, monetary policy extended its fundamental attention grab this past session. On the heels of the Fed’s policy hold, the Bank of Japan (BOJ), Bank of England (BOE) and South African Reserve Bank (SARB) all left their rates and stimulus efforts unchanged. Of these groups, the UK authority’s reached further into the global scale. According to the MPC, the world’s sixth largest economy is at risk of seeing its recovery stall if the pandemic continues its resurgence. That seems a principal consideration for their investigating the viability of negative rates. Though, all things considered, I place greater weight on ongoing trade negotiations when it comes to near-term GBPUSD volatility risk.

Learn more about how central banks impact the FX markets in our education section.

Chart of S&P 500 with Aggregate of Major Central Bank Balance Sheet Holdings (Monthly)

Dollar and S&P 500 Refuse Opposing Breaks, What Will Resolve This Tension?

Chart Created by John Kicklighter with Data from Bloomberg Terminal

Ultimately, monetary policy is one of the most pressing systemic concerns on my radar for much grander and long-term reasons. Though some may not appreciate it, the market’s stability and even its speculative reach these past years has drawn heavily upon the external support the world’s largest central banks have built into the financial system. Many have feared what happens when the major players start to withdrawal that expansive support – and indeed we saw it happen starting in 2015. Yet, my concern is what happens should confidence in stimulus falter even if it is expanding in response to economic and/or financial trouble?

Chart of Monetary Policy Effectiveness

Dollar and S&P 500 Refuse Opposing Breaks, What Will Resolve This Tension?

Chart Created by John Kicklighter

Key Pairs to Watch Friday and Beyond

At the top of my list of pairs to watch moving forward is the EURUSD. This benchmark’s role as the world’s most liquid cross certainly contributes to its appeal as it tends to reflect more systemic trends. That said, from what driver will it take its lead? Below, the pair is overlaid with the S&P 500 – a risk benchmark. The more recent head-and-shoulders pattern paints a provocative picture. Yet, the Dollar’s safe haven status can readily be called into question. Consider also the competitive outlook for recovery which has recently been shaken by the OECD’s forecasts while the WHO recently warned that Europe’s weekly COVID cases have surpassed the March peak. Monetary policy, trade wars and geopolitical issues are further active matters that are competing for control.

Chart of EURUSD with 50-Day Moving Average Overlaid with SPX and Wicks Below (Daily)

Dollar and S&P 500 Refuse Opposing Breaks, What Will Resolve This Tension?

Chart Created on Tradingview Platform

Another pair with overlapping layers of fundamental intrigue to raise the risk in its technical picture is AUDUSD. The cross is more historically connected to risk trends, it has defied the crumbling backdrop for Australia’s economic dependency on China and data continues to print for both sides. Many may have their interest piqued by a 0.7400 or 0.7200 break, but I would be more impressed if this pair were to realign to one of the aforementioned major themes.

Chart of AUDUSD and 50-Day Moving Average (Daily)

Dollar and S&P 500 Refuse Opposing Breaks, What Will Resolve This Tension?

Chart Created on Tradingview Platform

If you want to download my Manic-Crisis calendar, you can find the updated file here.

.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES