Central Bank Help is Negative for the USD
Good Morning,
As the saying goes, buy the creeper, sell the leaper. We went from 1325 to 1375 in SPX in about 7 days and from resistance to support in 3 trading days. There you have it! Or do you? I have changed this saying to: buy a leaper, sell a leaper. Why?
In the age of "government intervention", we have central banks intervening to drive the markets up just as fast as they go down. Today, it was the ECB's Draghi and it also could have been helped out by weekly claims in the US.
Let's review the fundamentals. We still have plenty of earnings, so keep an eye on them. The usually volatile Durable Goods were up when you include transportation, but down when you include consumers. So consumer spending is still weak. Make note of that. Claims were bertter than expected, but a lot of that is attributed to auto worker seasonality. And oh yeah, the international rumorville. Those rumors brought the SPX off its lows two days in a row and then spiked them really high today.
So quickly we turn to technicals. As mentioned, the SPX finished well off its lows two days in a row. An even better showing today post Draghi comments. We were quite close to a crucial support level of 1325 as we were trading around 1329 just before the Fed/ECB rumorville got going. I still believe 1325 and then 1308 are crucial support and another round of bad economic data could get us there. And just to be fair, bad economic data has just as good a chance to get us above the next two resistance levels too. Those levels are 1375 and 1425. So buying dips in equities amid central bank speculation seems to be working, but as always, trade plans are crucial and trading the right amount of contracts for your account is crucial as well. We have been in this 50 point range since the end of June – almost a month. Which way we will go is anyone’s guess.
In the USD, we are anything but rangebound as it trades against the EUR/USD. But other currencies such as the GBP/USD, NZD/USD and USD/CAD are rangebound over the last month as well. Today, we have the USD weakening (funny because Draghi's comments are bearish for the EUR) as those inter-market relationships take over: equities up and USD down. Today could be a great day to look for BUFFALO BOUNCES.
Happy Trading
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.
