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Yesterday’s meltdown was partially mitigated by oil and gas bouncing at our downside targets……but primarily by the strong moves in USDJPY and EURUSD which allowed an 8% spike in DXY.Now that USDJPY is back to an important overhead resistance, EURUSD is testing a channel bottom from 2000 and SPX/ES are weighing whether to maintain the channel from 2009, what can we expect from currency pairs?

continued for members…

Note that EURUSD has pushed below the channel bottom from 2000…

…and USDJPY pushed right through the SMA200 and is threatening a breakout of the falling red channel.Gold continues to be buffeted by DXY’s strength and margin selling. Remember, it reached the top of its rising channel and within 3.70 of our IH&S target at 1708. So, a decline was entirely justified as we discussed on Mar 9.

The .786 and .886 targets weren’t supposed to be reached until June-July. The pullback to the white midline and SMA200 is exactly what we expected well before DXY started spiking higher. The fact that it hasn’t fallen any more than it has is a testament to the fear out there and the degree to which it’s being accumulated by individuals and central banks.

This leaves ES above its channel bottom and with only a slight deficit on the open.

Coupled with DJIA’s bounce at critical support……we should see a rally today – as long as VIX can be brought down below TL support……CL continues to bounce……and the 2s10s can decline to its tipping point at 48 bps.I don’t think the 2s10s is done, as TNX is still backtesting former support at 13.36 and 15.54… …while the 2Y is likely to remain suppressed by current and future FOMC action.This means the spread will continue to remain elevated unless 10Y yields continue falling. At this point, that’s a tough sell. Would you take the extra risk to gain 60 bps if you didn’t have to?

It’ll be interesting to see what happens with the 30Y now that it is backtesting its former support……and whether ZN can hold 135.What’s happening, of course, is that the algos have been contributing to stock selling – especially the plunges in oil and gas.

If oil and gas switch teams, then it’s a matter of (1) convincing the Japanese to endure higher prices on their imports and the Europeans to export their goods for less AND (2) convincing the carbon-based sellers who have woken up from their BTFD stupor to stop selling.

That’s also a tough sell, as no one can say how bad the COVID-19 crisis will get or how long it will last.

So you have indices like DJIA back to its 2016 levels and RUT almost back to its 2016 lows – also the midline of the channel it spent from Oct 2017 to Feb 2020 trying to break out of.A reminder of where we’re going if the yellow channel breaks down…More later…

UPDATE:  3:20 PM

Pretty much as expected, though the breakout hasn’t really happened yet – more of a holding pattern so far. If VIX is going to break down, it’ll probably be in the last few minutes of trading as usual.  I have to be on calls between 3:30 and 5:00, so will post more after the close.

UPDATE:  6:30 PM

I know this will come as a shock to everyone, but VIX ticked below the TL right at the close and USDJPY pushed slightly above the channel top.  I guess you can see what TPTB have in mind…The legacy is safe, at least for another day.