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King Dollar Dominates as the S&P Grasps at Support - Webinar

King Dollar Dominates as the S&P Grasps at Support - Webinar

2020-03-19 19:00:00
James Stanley, Strategist
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US Dollar, S&P 500 Talking Points

  • The US Dollar has been on a rampage over the past ten days, jumping from a fresh yearly low up to a new three-year-high in less than two weeks.
  • USD isn’t the only market that’s been on the move, as most major currencies have succumbed to USD-strength and even US Treasuries have been on a chaotic ride.
  • In the optimistic column – the S&P 500 appears to be trying to set support at a key area of confluence on the chart. Today marks the fifth such day of tests below this area which, as yet, hasn’t given way.

Dow, S&P, US Dollar, US Treasuries – History is Being Made

It’s been a historic couple of weeks across global markets and we’ve now heard from a number of major Central Banks on the topic of stimulus and accommodation. To date, nothing has helped to perk-up buyers in global equities but, price action may soon be nearing a point of interest as the S&P 500 has spent the past five trading days grinding around a support level at a confluent spot on the chart. This takes place around the 2400-2413 level on the chart, and today’s bar offers a higher-low from yesterdays, which had set a fresh three-year-low in the index.

S&P 500 Daily Price Chart – Grasping at Support

ES SPY SPX Daily Price Chart

Chart prepared by James Stanley; SPX500 on Tradingview

As looked at yesterday in the article, Dow, S&P Slammed as Treasuries, USD Show Violent Gyrations, the S&P 500 is sitting at a key spot of longer-term interest as there are a number of potential supports nearby. On the monthly chart below, the 38.2% retracement of the post-Financial Collapse move rests at 2354. At 2413 is the 61.8% retracement of the 2015-2020 major move. And in between those prices is a trendline projection as drawn from 2009 and 2011 swing lows.

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S&P 500 Monthly Price Chart: Can Confluence Break the Tide of Sellers?

ES SPY SPX SP500 Monthly Price Chart

Chart prepared by James Stanley; SPX500 on Tradingview

Also a recent hot topic in my webinars and something that I had touched on yesterday – traders should remain cautious as some peculiarities continue to show – mainly with massive volatility in the Treasury market. This appears to be far from a ‘normal’ backdrop as the daily chart of ‘TLT,’ an ETF representing Treasuries with 20 years of maturity or more, takes on the resemblance of Bitcoin moreso that the typically slower price action in such a key market. From a quick spike of strength earlier in the month to a massive move of weakness over the past ten days – something is amiss. And this is reason for traders to try to avoid getting too comfortable in any positions – and to be extra cautious of holding weekend risk as there’s no telling what the headlines might bring.

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TLT Daily Price Chart: Abnormal Price Action in US Treasuries

TLT Daily Price Chart

Chart prepared by James Stanley; TLT on Tradingview

US Dollar Goes Along for the Ride

While the move in the US Dollar looks outlandish, particularly from shorter-term perspectives on the daily chart and under – it syncs up with the recent chaos in US Treasuries. TLT topped-out on March 9th; and the US Dollar bottomed-out on the same day, with DXY temporarily setting a fresh yearly low.

Since then, however, it’s been a one-way-train in the opposite direction, and the USD is now trading at a fresh three-year-high with the scope for more.

One clear driver is an insatiable demand for USD as the world gets more risk averse. But the bigger question would be just how frightened are market participants if they’re selling out of bonds and going into just cash? And further – what might be creating that fear?

One possible driver is credit, as lower-credit quality bonds have been hammered as yields there have spiked while investors duck for cover in the comfort of cash.

For currency traders – this presents a vexing prospect of having to choose whether to a) chase the USD-move higher or, b) take a counter trend approach to look for a pullback that may, eventually, turn into a reversal. Given how widespread this theme has become, it’s going to be difficult to avoid the rip that’s shown in the USD over the past week-and-a-half.

US Dollar Daily Price Chart: From Worst to First in Less Than Two Weeks

US Dollar USD DXY

Chart prepared by James Stanley; USD on Tradingview

USD/CAD Finally Finds Some Resistance at a Big Figure

USD/CAD has been a one-way-train over the past couple of weeks, extending a 2020 rally that saw the pair come into the year below the 1.3000 level and, more recently, jumping up to the 1.4500 area for the first time in over four years. Even when USD was selling off in late-Feb/early-March, the Canadian Dollar was generally weaker, keeping the bullish trend intact before the huge rush of USD-strength came into play.

At this point, potential support exists around the psychological levels of 1.4250 or 1.4000, both of which become of interest should this resistance hold at the 1.4500 handle last into the weekend. Above current price action, the 17-year-high exists at 1.4690, after which the next psychological level can come into play around 1.4750.

USD/CAD Daily Price Chart

USDCAD Daily Price Chart

Chart prepared by James Stanley; USD/CAD on Tradingview

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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

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