Charts I’m Watching: Jan 10, 2013

Draghi’s press conference was beyond positive — mostly rhetoric, of course, but it sounded good. The ECB sees conditions improving, blah, blah, blah even as euro zone unemployment continues to set record highs and bank health hits record lows.

Facts might eventually enter the equation or not, but in the meantime it’s enough for currency investors to disregard the lack of a rate cut and bid up the EURUSD almost a full 1% on the session.

The dollar is likewise plunging, reaching 80.055 moments ago.

Jobless claims were reported slightly higher than expected, perhaps giving Fed intervention fans hope that the punchbowl won’t be removed as quickly after all.

The eminis are up 8 points at this time, suggesting SPX will likely surpass the recent high of 1467.94.  I’ll likely go long on any move over 1468, but with tight stops as there is likely to still be negative divergence on the daily chart.

The previous high of 1474.51 remains the obvious key level for bears to defend and the area at which I would probably close my core short position.  Why bother to continue holding it?

I have a very strong suspicion that this is one of those rallies on vapor that will quickly fizzle.  The dollar, while selling off big time, will likely hold 80.  And, note that this morning’s slide is still just an A-B-C back test of the recently broken channel.

There is some indecision, to be sure.  There’s still positive divergence to the upside (relative to Point B) but, now, negative divergence to the downside (on 4hrs or less, not the daily.)

UPDATE:  9:48 AM

SPX pushed above 1468 for about one minute and immediately retreated.  This is likely nothing more than a stop clearing exercise.  I’ll hold off adding a long position unless we get a sustained push back through.  My core short from 1462 remains in place, though we’re obviously on high alert for a break-out.

The dollar has rebounded slightly off its lows, and the euro has stalled for the moment.

If we set aside the euro (the largest component of the DX) the dollar is showing much more resiliency.  Consider the AUDUSD pair, which has formed a double top (1.0585 Dec 12), but hasn’t broken out of the falling channel or made any new highs since breaking down from the rising wedge.

Taking a look at the USDJPY, the pair hasn’t added a dime since our Jan 4 top call (despite heavily negative divergence.)

I guess what I’m saying is I have no confidence whatsoever in the euro rally.  It seems quite overdone on both a technical and fundamental basis.  The ECB will print and cut rates before long, despite what Draghi says.

If the Fed really does hold the line on further easing, this could be disastrous for the EURUSD.  I suspect it’ll be much closer to 1.20 than 1.30 before mid-year.

UPDATE:  1:20 PM

The Philadelphia Fed released their revised December survey numbers this morning.  When was the last time a revision revealed that things were actually better than originally reported?

The original Dec 30 results noted:

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of ‑10.7 in November to 8.1 this month. This is the highest reading since April and is slightly above the reading before the post-storm decline in November (see Chart). The demand for manufactured goods picked up: the new orders index increased 15 points, from ‑4.6 in November to 10.7 this month. The current shipments index also improved notably, rising by 25 points.

Labor market conditions at the reporting firms improved marginally this month. The current employment index, at 3.6, registered its first positive reading in six months. The percentage of firms reporting increases in employment (20 percent) narrowly exceeded the percentage reporting decreases (16 percent). Firms also indicated an increase in the average workweek compared to last month.

The revised data (if it is to be believed) shows the index hit 4.6, not 8.1; and, new orders hit 4.9, not 10.7.  But, the most telling adjustment was employment which, instead of registering the first positive reading in six months at 3.6, remained mired in negative territory at -0.2 — the sixth negative reading in a row.

Expectations for the future general activity were revised from 30.0 to 23.7 – about where they’ve been for the past year.  And, expectations for future employment dropped from 14.8 to 11.2 — the third lowest reading for 2012 and a very slight improvement from the Hurricane Sandy period.

click to watch

This new information helps explain the body language of the Fed employees delivering the “great news” a couple of weeks ago.

UPDATE:  3:30 PM

SPX continues to inch higher — only a few points below the previous Sep 14 high.

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