SPX, Dax and Nikkei Diverging, and Setting Up USD/JPY
- We spent a major focus on the divergent tone of equity indices being seen at present. While the macro environment is rather murky (and discussed at length in our 2Q forecast here), price action in stocks is showing significantly different tones around-the-world.
- We noted the divergence in equity indices from the US, Germany and Japan: While American stocks in SPX are continuing to show notes of an up-trend, softness in European equities as seen in Germany while also seeing precipitous selling in Japanese stocks highlights the divergent tone currently being seen in shares around-the-world. The big question is which direction might be ‘right?’
- One way that traders can treat such a situation is with a spread-like strategy of buying the strong index (SPX) while selling the weak index (Nikkei), in which the traders risk management can allow for a 50/50 win rate to bring a potential profit to the strategy. To read more about risk management, check out our Traits of Successful Traders research.
- We also looked at the prospect of continued top-side run in Gold. Gold has just broken above another bull flag formation after setting multiple higher lows, reminiscent of the higher-lows preceding the bullish reversal in December of last year.
--- Written by James Stanley, Analyst for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.