ECB Wakes, Nasdaq Leads, Yields Doubt

The ECB has officially abandoned negative interest rates, all three main US indices regained their 55-DMA and the ratio of growth/value stocks broke above its 8-month trendline resistance. Can we rally further into and past the July FOMC? The charts below reflect the generally strong correlation between the US dollar index and the S&P500, with USDJPY acting as a go-between due to its sensitivity to bond yields. Let's dig in deeper.

It is no surprise that each of the 3 highlighted (blue) tops in the S&P500 coincided with the start of fresh rallies in USDX. But as the S&P500 breaks the March trendline resistance, it sets its sight onto the 4120s—once it has filled the last of the June Gaps by clearing 4010/20. Then, we start considering the 100-DMA of 4140 and re-drawing the trendline to extend it from the January high on the weekly.  

But maybe all of the above is too much effort, and we ought to looking at the Nasdaq100, which has risen 13% from its June lows vs 9% for the SPX and 8% for the DOW30. Why would we expect Nasdaq100 to continue rebounding faster than other indices? The breakout in the Growth/Value factor ratio, suggests further leadership in technology, which could bring 12970 in sigh.

Continued outperformance in Nasdaq and growth stocks will need the help of further concerns about growth (like today's ugly Philly Fed and LEI reports). But more will be required from the inflation side, as core PCE and CPI are released on later this month and early August. Will this translate into 135 USDJPY and 1.0440s in EURUSD. Very possible.