Currencies: A Turning Point

Lots going on this morning, with currencies joining VIX in leading the equity circus. EURUSD smashed its March highs and is closing in on one of two levels of overhead resistance as DXY tests an important channel bottom. The next moves for each will have important implications for the economy and for algo-driven equities.

ES has recovered 23 points of its overnight losses after failing to hold our .886 Fib target. It’s one vaccine headline away from recovering 3258.

continued for members…The big picture for ES and SPX:

As usual, VIX holds the key to the algo action.But, we also have lots going on with currencies – with the euro’s push to new highs being the major action.If it pushes through the .500 and channel line, it has potential to the .618 and red channel top.

The red channel top goes back quite a ways and is very important resistance. If EURUSD breaks above it, the rising white channel takes over.This obviously has major implications for DXY. We are awfully close to the rising purple channel bottom. If DXY falls through it, the new support is the white channel midline at around 91.36. This would obviously boost inflation and, presumably, interest rates. As we’ve discussed many times, I can’t see the Fed allowing this to happen – not with debt spiraling out of control.

The USDJPY continues to backtest – nothing new.It also has implications for gold, which as I posted last night has tagged a potential channel midline. I’d want to be short at anything below 1866.80.

We’ve discussed in the past the inflation conduit between gold and oil – which are both at extremes. If gold is to tumble, it generally implies a tumble in oil as well.

The push above June’s highs – which closed the Mar gap at 41.05 – surprised me a bit. But, given that we get EIA inventory this morning, it might be nothing more than the usual pre-report ramp job. It bears close watching.

Obviously, much of the above depends on VIX. Will the little TL hold, or are we destined to drop to the .886 at 19.86? A rebound here means ES and SPX’s .886 will hold. A drop means at least a delay, but potentially higher highs or new highs – though I am skeptical of that scenario at this time.

Bonds are fairly quiet this morning, though I continue to look for 10Y yields to drop sharply – supporting the notion of a sell off. Last, a few odds and ends. The equal-weighted S&P 500 faces tough overhead resistance. And, NFLX has constructed a nifty little triangle with plenty of downside potential if the market tanks.To wrap it all up…unless VIX can break down we should see DXY rebound, 10Y yields break down, CL and RB break down and stocks sell off.