Two weeks ago I floated the idea that the USD, which had broken down below a long-term trend line and bounced, wasn’t done [see: The Rally That VIX Built.] While the effects on equities would likely be muted by drops in VIX and a rise in oil prices, currencies were in for some significant moves.
Our thesis was that US economic data would continue to come in weak, and the USD would finally be able to tag critical support — the midline of a channel dating back to 2009 and the .786 line of another dating back to 2003.Yesterday, that move finally played out, resulting in a healthy sell-off in equities. SPX, which reversed at our upside target on Monday, dropped to slightly below our downside target — a backtest of the large Inverted Head & Shoulders Pattern we’ve been tracking and a nice 30-pt short.With futures up over 7 points this morning, is the worst over?
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