Price Action Talking Points:
- In this webinar I looked at a number of markets in effort of devising strategy for the days ahead.
- USD has recently set a fresh 20-year-high, USD/JPY a fresh 24-year high and EUR/USD sits very near 20-year lows ahead of an ECB rate decision on Thursday. Meanwhile, the S&P 500 is testing a massive spot of confluent support and in the webinar, I looked at short-term price action and how that might be approached in the near-term.
- To be added to the list for upcoming webinars and to be notified in advance, the link below will help:
This is an archived webinar from a session I hosted earlier today. The backdrop was somewhat foreboding as equities had opened the week with a support test at a major area on the chart, and this was following another bullish run in the USD. This time, it was USD/JPY that was doing the bulk of the pushing as the trend in Yen continues to heat up. EUR/USD did set a fresh low this morning, but there was little continuation and the Thursday ECB rate decision throws a wrench into the mix as the bank is widely-expected to bring a hawkish message to markets in effort of stalling or, at least hopefully, slowing down this bearish trend in EUR/USD.
JPY
I had warned two weeks ago that the Yen was setting up for a big move. There was consolidation in EUR/JPY, GBP/JPY and AUD/JPY even as USD/JPY continued on its bullish trajectory.
That move continued to come to fruition this morning, with AUD/JPY setting a fresh three-month-high and re-approaching a massive area of resistance on the long-term chart. Interestingly, the RBA hiked rates by 50 basis points but you might not know that if looking at AUD/USD, which has lost value since the move. AUD/JPY, however, reflects that AUD-strength to go alongside a weak JPY.
AUD/JPY Daily Price Chart
Chart prepared by James Stanley; AUD/JPY on Tradingview
USD/JPY
USD/JPY, on the other hand, has already rushed up to fresh 24-year-highs and even with a well-built bullish trend facing off at a big figure for the first time in two decades – bulls have been able to continue pushing. This is yet another example of why ‘overbought’ is a relative thing.
Last week saw turbulence at the 140 psychological level, which was quickly turned into support. So far this week however the move has been near-parabolic in USD/JPY.
USD/JPY Two-Hour Price Chart
Chart prepared by James Stanley; USD/JPY on Tradingview
SPX
I had covered US equities in this week’s technical forecast and I remain bearish. The big question in my mind is whether bears push here or whether they wait until after the September FOMC rate decision to do so. The larger move, in my opinion, would happen after bulls hold support and spark a rally into the next rate decision. At that point, the Fed will likely be unnerved that markets continue to fade them; and such as we saw Powell take a more-hawkish tone at Jackson Hole, that could be proper excuse for him to ramp up the verbiage.
The big question I have is whether bears will wait or whether they’ll make their move now. The Fed has been clear – they want inflation-lower and the only way it seems that could happen in expedient fashion would be for a major market meltdown type of scenario, which I don’t think anyone wants to see. So, the Fed is going to have to remain hawkish until inflation comes down, because as I highlighted in the forecast, they really can’t afford to miss the mark here, and I mean that in a literal sense.
At this stage, the S&P 500 is sitting on a trendline as produced by June and July swing lows, and this is just below a confluent area that held the lows last week that spans from 3902-3915. There was some breach below that spot this morning but there was a dearth of selling activity below, which has allowed for a support bounce. If price does bounce, there’s lower-high resistance potential at 3942 and then 3958-3964. Above that, 3983 remains relevant, after which the 4016 spot comes into the equation.
Alternatively, breakout strategies could remain in favor by those that want to move-forward aggressively with bearish equity themes.
S&P 500 Four-Hour Chart
Chart prepared by James Stanley; S&P 500 on Tradingview
Nasdaq
The Nasdaq is in perhaps an even more bearish spot than the S&P 500 above. Price is currently grasping at the 12,000 psychological level and that’s been a hard fought struggle this week. Last week’s resistance at 12,262 seems fairly well-defined at this point. I’m tracking next support down around 11,860 and then around 11,700.
Nasdaq Four-Hour Chart
Chart prepared by James Stanley; Nasdaq 100 on Tradingview
USD Fresh 20-Year Highs
The US Dollar has now crossed the 110 psychological level and this has been helped along by meltdowns in both the Euro and the Japanese Yen.
Will those continue?
I would expect to hear something from the Bank of Japan this week regarding the Yen, something along the lines of ‘carefully watching FX prices,’ or something of that nature.
For the ECB – well the stage is set: They have a rate decision on Thursday. And the harder the Euro drops against the USD, the more inflationary pressure is on the horizon. They need to hike rates to try to stem the bleeding but then that tightens economic conditions for an area that can ill-afford it. So, this is a steady balancing act and the European Central Bank will have the world’s attention on Thursday morning – can they say or do anything that might stem the bearish flow in the single currency? And related – will that be able to stall the aggressively-bullish run in the USD?
USD Daily Price Chart
Chart prepared by James Stanley; USD, DXY on Tradingview
--- Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education
Contact and follow James on Twitter: @JStanleyFX
