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For the fifth time in the past week, DX is threatening to break out.  Today, it’s courtesy of a “leaked” threat by the ECB to lower interest rates even further.  Somehow, even more negative interest rates are supposed to help the eurozone with its various and sundry problems.

DX is, yet again, pushing above its .886 Fib — if only intra-day — but, faces serious overhead resistance just above.

EURUSD is also pushing below its .886.  But, as we discussed in our last update, faces serious support just below.Will they both break out/down in the coming days?  Only central bankers know for sure.  But, it’s important to realize that it’s all just a smoke screen.

That’s right.  The real action is taking place daily in USDJPY and CL — both of which are obviously affected by the dollar’s actions.  Both are being used in a virtual tag team of well-timed bounces to instigate rallies and prevent drops.

The pattern lately has been quite consistent.  USDJPY is letting some air out after its rising channel from mid-Oct recently broke down.  After ramping stocks higher the day before and resetting overnight, it drops just before the open.  CL, for its part, drops overnight, then rallies at the open to provide cover for USDJPY’s drop.  An hour or so into the session, USDJPY finds its feet and starts a steady climb throughout the day to pump stocks higher — or at least prevent further drops.Note that today was different.  Very different.  And, there’s an important reason why.

continued for members...

Today, USDJPY rallied hard just before the open, breaking above the top of its falling white channel.  It continues to backtest the channel top in a show of apparently breaking out (because appearances are everything.)CL is breaking down below its rising channel bottom, just enough to nudge stocks lower as it did on Monday.The effect on SPX is to drive it lower, toward what I expect will be the right shoulder of a fairly well-designed IH&S Pattern targeting 2118.45.  It won’t take much. The bottom of the rising white channel is at 2085ish, and the already-tested SMA20 is just below at 2080.  We’ll know it’s enough when CL starts rebounding.Note that 2118 would take SPX back above its Nov 3 highs (completion of the Bat Pattern.)  Depending on what happens there, another IH&S might even be in the cards.

Can they pull it off? I’m not sure. With this being a low-volume holiday, TPTB have pretty much free reign to do whatever they like.  There are a few pesky geopolitical risks floating around, and the economy continues to founder.  Oh, and Mr Market isn’t too keen on the idea of rising interest rates.

Stay tuned.

UPDATE:  9:46 AM

If it comes together, look for USDJPY to hold the white channel top while CL returns to the purple channel bottom for an “oops, did I break trend for a moment?” rebound.

Note that ES already completed its IH&S, and is simply biding its time while SPX catches up. I should also mention at this time that TPTB’s preferred method of accomplishing important breakouts and bullish patterns is to let them play out in a huge gap up over holiday weekends.  It’s happened more times than I can remember, and usually in a very similar fashion to what we’re contemplating.

UPDATE:  9:57 AM

So far, so good.  But, this is a bit too straight-forward.  I expect a more circuitous route than popping straight up to 2094 and beyond.BTW, like many of you, I will be taking off early today for the holidays.  My last post will be around 11:00 this morning.  And, I don’t expect to post on Friday, when the NYSE closes at 1:00 ET, other than to catch up on some secondary charts.

UPDATE:  10:35 AM