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As the US Dollar Gains, Stocks Feel the Pain

As the US Dollar Gains, Stocks Feel the Pain

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After a day and a half reprieve, equity weakness began to show again in global markets, and we may not have yet heard the end of the development of that theme. Meanwhile, the Bank of England posed a hawkish twist that can keep currency traders busy in the weeks ahead, with attention being drawn to next week’s calendar for both UK and US inflation numbers. These should be big drivers.

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Stocks Sell-Off, S&P Resistance 2726

The first market that we looked at was the S&P 500: prices were pushing lower as we began our webinar, further eradicating the strength that had shown up on Tuesday and early-Wednesday. On Tuesday, I mentioned that this theme of equity weakness likely wasn’t yet over, as a bit of resistance had begun to show after that rather aggressive bounce. While the years’ long bullish trend remains, near-term bearish price action makes the prospect of ‘buy the dip’ unattractive until some confirmed element of support begins to avail itself. We looked at a couple of potential areas for such a theme underneath current prices with focus zeroed-in around 2400.

Cable Chaos Around BoE’s Hawkish Twist

GBP/USD hasn’t exactly been a calm instrument of recent, and we talked about this yesterday ahead of this morning’s BoE rate decision. This morning saw the bank take a hawkish twist, which is quite the change-of-pace from the pessimism that surrounded the BoE’s outlook in the wake of Brexit. The BoE warned that rate hikes may be faster and larger than originally anticipated, largely in response to the aggressive levels of inflation that have been seen since the drubbing that GBP/USD took in the latter-half of 2016. This keeps the currency in the driving seat for bullish exposure, but as we mentioned this morning, traders may be best-served by directing themes of Sterling strength away from the US Dollar (and perhaps even the Yen, as well).

US Dollar Breakout – Strength on the Horizon?

Also earlier in the week, we had a false breakout in the US Dollar as DXY was unable to take-over the 90.00 level. This finally happened on a subsequent attempt yesterday, and that breakout ran all the way into this morning. The Dollar started to pull back around the Bank of England’s rate decision, as considerable strength was beginning to show in GBP/USD, and this was soon met by buyer support showing above that 90.00 level. This keeps the door open for bullish USD-strategies as we move towards next week. Of particular note – US inflation figures are released on Wednesday morning, and that appears to be a primary pain point here in USD trends.

EURUSD: Deeper Retracement Potential

On Tuesday we looked at support hanging on by a thread in EUR/USD, and since then that support’s given way to a deeper support level, which also looks as though it may soon give. This nullifies the bullish scenarios we were looking at on Tuesday and, instead, suggests the potential for short-term bearish positions down towards the 50% Fibonacci retracement at 1.2167.

USD/JPY: Devoid of Actionable Near-Term Setups, but Good Reference

We looked at this for more for reference, as USD/JPY is devoid of any attractive near-term setups. The key to take from this chart is how the recent USD strength that’s shown-up has been largely irrelevant here, due in part to the Yen-strength that’s developed along with this recent bout of risk aversion. We do have bullish potential, as noted by the higher-lows building near the bottom of this week’s action; but more would need to fill in on the upside to make this a workable setup.

EUR/JPY: Breaks Fib, Trend-Line Support

There may be more to work with here than USD/JPY, particularly if those prior trends come back. EUR/JPY was in the process of testing below the January swing as we were looking at the pair, but the bigger-picture support zone that held the pair-up in Q4 of last year, comprising the area from 131.43-132.05 could still be usable should support actually show in this zone.

GBP/JPY with a 250-Pip Round-Trip, Look for Deeper Support

We had looked at this setup yesterday ahead of BoE and our stance remains the same. A potential support zone straddling the 150.00 psychological level could be usable for a bullish continuation thesis.

AUD/USD: The Bears are Back, and In Control

We’ve been following Aussie for USD-strength scenarios for a few weeks now, and that prior bullish trend has had the light-switch flipped into an aggressively bearish mode. Prices are now fast-approaching a key psychological level at .7750. If support shows up here, selling the lower-high that is produced thereafter could be an attractive way of trading short-side continuation in the setup.

Gold Prices Snap the Neck

We looked at a head and shoulders formation on Tuesday, and the neckline of that formation gave way yesterday as USD-strength continued to show. The measured move of that head and shoulders pattern points towards the $1,287 level, and this would favor bearish short-term strategies until something changes.

--- Written by James Stanley, Strategist for

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