Dollar and Yen rally as equities and commodities plunge:
For the start of the trade week it's been nothing but a sell-off for all higher-risk, higher-yielding markets. In yesterday's update I issued a pretty strong warning that the equity, commodity, and Forex markets were ready to break their ranges and that's exactly what played out today... spot gold, spot crude, the S&P 500, S&P 500 futures, the Dow and Dow futures all broke their ranges to the downside. The only market that didn't quite make a range break was the higher-yielders in the Forex market although we did see the EUR, GBP, AUD, and CAD come under strong downside selling pressure against the USD and JPY.
Spot gold was one of the first correlated markets to break its range and the move ended with gold making multi-month lows, falling all the way to the $918 level before slightly recovering in the NY afternoon session. But it was the S&P 500 futures which led the way for these markets to break their ranges. The S&P sell-off began around the 918 level and easily crashed through key support zones making it all the way under the 890 level.
The S&P 500 cash market lost all of its 2009 gains today on its range break which was helped along by spot crude's move below the $67 level. Crude was beat up pretty badly and lost over 3.7% of its value today and this helped keep the dollar in positive territory against the euro and pound sterling.
Speaking of the euro, we had a brief moment where some central bank rhetoric gave it a boost against the dollar this morning... around 1011 EST ECB Trichet gave the euro a bump with these comments:
"Eurozone interest rates appropriate for now"
Within seconds of Trichet's comments on rates hitting the news wires the euro took off, moving back up to the 1.3900 level and gaining about 50-points based on his comment. But as soon as the market knocked out stops sitting at the 1.3900 level, within 90-minutes the EUR/USD was back to the point of lift-off as the S&P 500 and crude oil came under heavier selling pressure, pushing the euro lower and off its highs of the day.
When it was all said and done the carnage on Wall St. was ugly... US equity markets put in their worst performance in a two month's time.. the Dow Jones lost 200-points and the S&P 500 closed down 3% and losing every penny its made in 2009. None of this should come as a surprise to traders and is why I put such a strong emphasis on these range breaks in the weekly update... all the fundamental signs were there and the price action and price patterns were screaming this was ready to happen.
Of course tomorrow's a new day and I can't predict if this will be a one day trend or if it will be the direction the markets move this week but it will take some very good news or better than expected fundamental data to turn things around quickly.
Tuesday trading:
I went on another trading marathon today to take advantage of the volatility so today's update will be a little abbreviated but I want to cover a few issues for us traders to be mindful of tomorrow. First, between 0200 EST and 0400 EST a ton of Eurozone fundamental data will be released and it's all connected to the consumer, manufacturing and service sectors so you can be sure the markets will react to the data should we get any upside or downside surprises here. And then at 0900 EST the Belgium business report will be released along with a speech by ECB Weber. Trichet tried to talk the euro up today but with limited success so if you're trading the EUR/USD on Tuesday pay attention to the data and the rhetoric that comes out of the ECB.
At 1000 EST we get the latest Existing Home Sales report and the House Price Index data. Keep a watch on the HPI because it's connected to inflation/deflation. I'm still all about the inflation data and still convinced deflation remains a bigger issue than inflation right now. One of the big reasons the US has a deflation issue is tied directly to the sharp decline in housing prices. If the HPI continues moving deeper into negative territory we have a growing deflation issue and this is not something the markets will be too happy about.
At 1230 EST Obama will speak and then of course we have our other big fundamental event of the day which is the mega $40 billion 2-year note Treasury auction. The results of the auction will be released around 1300 EST and should it turn out sloppy with a high yield I would expect Wall St. to react negatively.
I see the possibility the dollar could stay on a firmer footing right into Wednesday's big FOMC event and then once again all bets are off because there's no telling what the Fed will say on Wednesday in terms of the future of interest rates, monetizing more debt, economic stimulus, and the state of the US economy.
The EUR/USD managed to hang on to its range today as it stayed well above the key 1.3753 level. The Asian session could easily bring more selling tonight, especially on the yen crosses. I am expecting to see the Nikkei sell-off and I'd be shocked if anything different happened. A big sell-off in Tokyo would likely cause more dollar and yen strength across the board so if you're trading this evening do yourself a favor and keep a watch on the correlated markets as they will serve as a great guide and trade indicator just like they did during the European and NY sessions on Monday.
EUR/USD key levels will be posted before Wall St. opens tomorrow and as always please be smart with your risk and money management over the next 24-hours as I'm expecting the volatility and price swings to continue.
-David
For the start of the trade week it's been nothing but a sell-off for all higher-risk, higher-yielding markets. In yesterday's update I issued a pretty strong warning that the equity, commodity, and Forex markets were ready to break their ranges and that's exactly what played out today... spot gold, spot crude, the S&P 500, S&P 500 futures, the Dow and Dow futures all broke their ranges to the downside. The only market that didn't quite make a range break was the higher-yielders in the Forex market although we did see the EUR, GBP, AUD, and CAD come under strong downside selling pressure against the USD and JPY.
Spot gold was one of the first correlated markets to break its range and the move ended with gold making multi-month lows, falling all the way to the $918 level before slightly recovering in the NY afternoon session. But it was the S&P 500 futures which led the way for these markets to break their ranges. The S&P sell-off began around the 918 level and easily crashed through key support zones making it all the way under the 890 level.
The S&P 500 cash market lost all of its 2009 gains today on its range break which was helped along by spot crude's move below the $67 level. Crude was beat up pretty badly and lost over 3.7% of its value today and this helped keep the dollar in positive territory against the euro and pound sterling.
Speaking of the euro, we had a brief moment where some central bank rhetoric gave it a boost against the dollar this morning... around 1011 EST ECB Trichet gave the euro a bump with these comments:
"Eurozone interest rates appropriate for now"
Within seconds of Trichet's comments on rates hitting the news wires the euro took off, moving back up to the 1.3900 level and gaining about 50-points based on his comment. But as soon as the market knocked out stops sitting at the 1.3900 level, within 90-minutes the EUR/USD was back to the point of lift-off as the S&P 500 and crude oil came under heavier selling pressure, pushing the euro lower and off its highs of the day.
When it was all said and done the carnage on Wall St. was ugly... US equity markets put in their worst performance in a two month's time.. the Dow Jones lost 200-points and the S&P 500 closed down 3% and losing every penny its made in 2009. None of this should come as a surprise to traders and is why I put such a strong emphasis on these range breaks in the weekly update... all the fundamental signs were there and the price action and price patterns were screaming this was ready to happen.
Of course tomorrow's a new day and I can't predict if this will be a one day trend or if it will be the direction the markets move this week but it will take some very good news or better than expected fundamental data to turn things around quickly.
Tuesday trading:
I went on another trading marathon today to take advantage of the volatility so today's update will be a little abbreviated but I want to cover a few issues for us traders to be mindful of tomorrow. First, between 0200 EST and 0400 EST a ton of Eurozone fundamental data will be released and it's all connected to the consumer, manufacturing and service sectors so you can be sure the markets will react to the data should we get any upside or downside surprises here. And then at 0900 EST the Belgium business report will be released along with a speech by ECB Weber. Trichet tried to talk the euro up today but with limited success so if you're trading the EUR/USD on Tuesday pay attention to the data and the rhetoric that comes out of the ECB.
At 1000 EST we get the latest Existing Home Sales report and the House Price Index data. Keep a watch on the HPI because it's connected to inflation/deflation. I'm still all about the inflation data and still convinced deflation remains a bigger issue than inflation right now. One of the big reasons the US has a deflation issue is tied directly to the sharp decline in housing prices. If the HPI continues moving deeper into negative territory we have a growing deflation issue and this is not something the markets will be too happy about.
At 1230 EST Obama will speak and then of course we have our other big fundamental event of the day which is the mega $40 billion 2-year note Treasury auction. The results of the auction will be released around 1300 EST and should it turn out sloppy with a high yield I would expect Wall St. to react negatively.
I see the possibility the dollar could stay on a firmer footing right into Wednesday's big FOMC event and then once again all bets are off because there's no telling what the Fed will say on Wednesday in terms of the future of interest rates, monetizing more debt, economic stimulus, and the state of the US economy.
The EUR/USD managed to hang on to its range today as it stayed well above the key 1.3753 level. The Asian session could easily bring more selling tonight, especially on the yen crosses. I am expecting to see the Nikkei sell-off and I'd be shocked if anything different happened. A big sell-off in Tokyo would likely cause more dollar and yen strength across the board so if you're trading this evening do yourself a favor and keep a watch on the correlated markets as they will serve as a great guide and trade indicator just like they did during the European and NY sessions on Monday.
EUR/USD key levels will be posted before Wall St. opens tomorrow and as always please be smart with your risk and money management over the next 24-hours as I'm expecting the volatility and price swings to continue.
-David
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