Intraday Market Thoughts ArchivesDisplaying results for week of Sep 20, 2020
USDX broke above that key neckline resistance of the inverted H&S formation, coinciding with the 55-DMA. The big question facing the FX market remains whether this is a dollar dead-cat bounce or the start of a longer retracement cycle. The price action on Tuesday highlighted the scope for further gains as it broke some technical levels and neared others. The bid in the dollar was strong and steady even as the news and market sentiment varied.
Below, is Ashraf's chart & trade idea on the DOW30 before the close of Tuesday's cash session, highlighting the 27500 neckline support turned resistance.
The steady bid in USD/JPY is certainly a curious element of the playing field as it climbs from levels that are undoubtedly a headache for Japanese officials. That extra bid could be providing some of the marginal strength in the dollar.
Another part of the equation is undoubtedly the resurgence of the virus in Europe. The UK placed a new curfew on bars and encouraged companies to allow work from home. Eurozone consumer confidence was better than anticipated on Tuesday but cases throughout the continent are moving in the wrong direction just as cold-and-flu season begins.
In the battle of easy money vs uncertainty the certain of low rates appears to be priced in while the uncertainty around the virus and US election is encouraging some deleveraging. That shift to the sidelines is helping to unwind crowded positions like long stocks and short USD.
Since the pandemic bottom, the balance of rates vs uncertainty has tilted towards the massive influx of central bank easing. It's led to unprecedented bounces is equities, a major move in gold and never-before-seen lows in interest rates.
By many metrics, it's gone too far. Then again, central banks may have also gone too far. In explaining his FOMC dissent on Monday, Kaplan said the Fed risked inflating a bubble by pledging to keep rates at zero even after its goals are accomplished.
Up until Monday, the dip in technology stocks was largely ignored by the FX and rates market. That changed with equities taking a broader leg down on Monday, led by Europe. What may have changed is that rising COVID case numbers are triggering fears of new restrictions. The US has so far shown a high threshold for COVID-driven economic weakness but other jurisdictions haven't been challenged in the same way. Most likely, the kinds of numbers many US states are tolerating right now would lead to major curbs in the UK or Canada but that remains to be seen.
The balance of it all begs for another look at the charts. Despite some larger moves on Monday, there were few breakouts. Cable held the Sept low, the euro rebounded back into the range from a five-week low and gold finished back above $1900. Here is a recap of Ashraf's calling the top of gold & silver 15 hrs before the peak.
Note too that markets bottomed in June on the Monday after the FOMC.
In spite of the mountain of worries, the potential for a vaccine and easy policy are powerful tools and it's far too soon to say that balance is broken. Ultimately, it will come down to the charts and the data. On Tuesday we get August existing home sales (exp 6.0m) and the September Richmond Fed (exp +12).Soft numbers and other day like Monday would be a strong signal.