“How dare China devalue its currency!” the ECB and BOJ cried…as they prepared to do more of the same.  Yesterday’s intraday crush were hardly enough to prompt the BOJ — the world’s foremost currency debaser — to expand QQE.  But, the PBOC’s actions sure have them warming up the old printing press, and with a nifty excuse to boot.  We’ve been expecting it.

The ECB, on the other hand?  Well it’s pathetic, really.  First, they threatened QE for years before actually doing it — giving everybody and their mother an opportunity to front-run it.  When they finally announced PSPP on March 9, the EURUSD had been plunging nonstop for a full 10 months.

Left alone, the euro would have reached parity with the USD within 60 days, tops.  After PSPP, it fell for exactly 4 sessions before the ECB pushed the panic button — bailing on the whole exercise.  The reason, of course, was the impact it was having on stocks (the thin purple line below.)

Unfortunately for the ECB, it seems there are still a few investors out there who insist on viewing the markets as rational and fundamentally driven.  They haven’t (yet) been trained in Pavlovian knee-jerk currency debasement buying panics.  They view a weaker euro as tantamount to a weaker European economy that argues for lower stock prices.  Fools.

This is no doubt a severe disappointment to TPTB, who rather hoped that the EURUSD would pick up where the USDJPY left off: the driver of the carry trade that has kept stocks on the rise for the past 4 years.

Instead, the EURUSD has evolved into a third-string bench warmer by which to lever stocks higher when the CL and USDJPY can’t be bothered.  EURUSD is so whipped that it can’t even complete a simple Gartley Pattern; every time it dips below the .618 Fib (1.0845,) stocks go apeshit.

So, the next time Draghi threatens to devalue the euro in response to China’s massive 4% currency move, remind him that he slashed the euro’s buying power by 25% between May 2014 and Mar 2015.  It drove interest rates below zero and inflated PE’s to historic highs, but did nothing to revitalize a failing economy.

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With multiple downside targets to choose from, SPX nailed the deepest natural Fib target (the .886) yesterday, then spent an hour flirting with another leg down to actually complete the H&S Pattern before the algos took over and sent it spiking higher.

The main drivers were the EURUSD and CL, which constructed another flag pattern just like the one on Aug 3-5, the last time it was called upon to prop up stocks.

We remain short from yesterday’s close.  Today’s targets coming up.

continued for members…

Look for SPX to backtest the SMA200 at 2075.4 today if it’s able to get any momentum going at all.

The hitch will be ES, which seems very intent on maintaining the rising white channel.  If it holds, then SPX will first head up to test the cluster of SMAs at 2094ish.

UPDATE:  12:52 PM

Having been unable to get prices down to the SMA200, the algos are instead trying for the SMAs.  USDJPY just “broke out,” so look for SPX to test 2094-2100.  One should be long here at 2090.

The problem, however, is that, even with the breakout, USDJPY is still below the yellow IH&S neckline and the rising white channel.  In other words, it’s portraying itself as a rally that won’t really lead anywhere.  We could be short again within an hour or less.UPDATE:  2:45 PM

More of the same – directionless… as a result of the mixed directions thrown off by CL and USDJPY.  CL tagged the falling red midline for the eleventy-billionth time.  Will it bounce yet again?  We’ll won’t know until the overnight session.Ditto for USDJPY: bearish due to failure to retake the neckline, but bullish as long as it’s above the red channel midline.SPX, unwilling to tag the .786 (also the SMA10) because it could cause an actual reversal, and unable to find its way to support at the SMA200 (who in their right mind would sell or short with that kind of support just below?)  It will probably either shoot up through the bunch of SMAs with a USDJPY breakout from the little purple channel.  But, if that breakout stops at the yellow, dashed neckline, the headfake quotient is quite high.

Bottom line, I’d stay long but keep very tight trailing stops.  And, any sustained reversal from the top of the purple channel would be cause to switch sides.

These are frustrating days for traders, and a great reminder that the market is as rigged as could possibly be.  Doesn’t mean you can’t figure out which way it’s going and make money on it; but, it’s definitely not as much fun.

UPDATE:  3:20 PM

SPD threatening lower here, even though USDJPY has broken out.  I’d dump the long position here at 2089 and try the short side with an objective of 2075.

Tight stops are recommended.UPDATE:  3:38PM

USDJPY just backtested the purple channel and is bouncing, so it’s time to close the short on SPX here at 2082.  USDJPY chart in a moment…

I’d reopen it in a jiffy if USDJPY can’t retake the white TL or if SPX drops through 2082.

Worth also keeping an eye on 5-min VIX.  A breakout through the white TL to 14.2 is a good possibility.UPDATE:  3:49 PM

USDJPY acting like it wants to keep going south, but maybe just a headfake.  Watch VIX for confirmation. Worth a shot shorting here at the close if you can hedge overnight.  Bad form to leave the SMA200 un-backtested.   Though I’d close it and go to cash if we get a quick drop to 2075 in the last 10 minutes.

There’s an equally good argument for ES to shoot up to 2095 to tag the top of a megaphone and its .886.