Are Forex Pairs Or Equties Leading?
You can make up all of the fundamental stories you want, but when it comes down to it, technical analysis won out today. And the key word in our technical analysis is: resistance. Otherwise known as too little demand or overbought. How long will this "key" resistance level of 1425 in the SPX hold? It is anyone's guess. But with some key data later this week, if it is just soft enough... Then again, soft data could be bullish! But the bottom line, using previous resistance provides for a "story". You have a clear story if you used it to get short the equity markets (or put on hedges) and it is breached. You have a clear story if it holds. That is what we are looking for in a trading plan: pre-determined risk to reward. The tough part is the "reward part". In this case, with such a strong trend, rewards, in my opinion, should be taken off quickly as these markets are still undoubtedly strong.
In forex, the USD strengthened as the equity selloff continued. Looking at the USD/CAD (the continuation of last week's oil trade), it is quite close to previous support:
Past performance is not indicative of future results
On the flipside, the GBP/USD is breaking out to the upside. This doesn't make much sense if the equity relationship is in tact and equities in fact do bounce off support. So which one is right? The equity markets at resistance or the GBP breaking out. Could there be a headfake? 
Past performance is not indicative of future results
Until further notice, I still am in the camp of bullish equities, so maybe the GBP is just leading the way.
Happy Trading and Be Environmentally Cool
Coach Brian
Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.
