Another day, another central bank announcement.  Actually, make that two central banks, and the big one yet to come on Friday.

In an effort to keep up with the ECB, Sweden’s Riksbank went all-in’er earlier this morning.  Around and around they go, waiting for the music to stop….

As with any other FOMC announcement day, I recommend not trading — at least until the dust settles.  Today, I’m putting my keyboard where my mouth is and will use the next several hours until the announcement to update as many charts as possible.

Last night, I posted an update to EURUSD.  And, earlier in the week, I updated both NYSE and DJIA.  If there’s a general theme to the big picture, it’s this:

Having failed to generate real industrial growth and real income growth, central banks are focused on reinflating asset values and protecting their share of international trade through currency debasement and ZIRP (or, NIRP in some cases.)

The chief driver of stock prices [see: What Really Drives Stock Prices?] continues to be the USDJPY which, now that it rests atop the critical .618 Fib at 120.11 and a bevy of moving averages, seems poised to break out.  If the “market” is to top May’s highs,  it needs USDJPY to break out.

And, that’s where things get complicated.  Because, right now, the US dollar chart suggests it’s done rising for the time being.  Having exhausted all its energy to drive SPX above its 200-day moving average, the old gal needs a breather.Arguing the opposite case is EURUSD, which has been on life support since breaking below channel support last Friday [see: Update on EURUSD.]

I know what you’re thinking:  is there a scenario where USDJPY can break out (yen weakness, dollar strength), EURUSD can break down (euro weakness, dollar strength) and the US dollar can also weaken?

Glad you asked.

continued for members…

In short: no.  Euro and yen weakness, together, would necessitate that the dollar break out of its long-standing flag pattern.  And, it’s pretty hard to imagine that happening without a rise in interest rates — or, at least a credible and unmistakable hint from the Fed today that there will be an increase in rates.

If the DX chart holds, then the dollar will weaken against the yen or the euro, or potentially both of them.  If it’s against the yen, then stocks will fall further.  If it’s against the euro, then there’s a pretty good chance that stocks can eke out further gains.Sure, it would negate everything Draghi said the other day about additional stimulus.  But, he has a long, distinguished history of jawboning the “markets” into doing what he wants without actually taking the promised steps.  It’s just that a stronger EURUSD doesn’t fit the charts…

Stocks are ticking higher this morning as the rate decision nears.  The upside and downside targets remain the same as outlined Monday.  The best, immediate downside targets are the SMA100 at 2036.83 and the SMA20 currently at 2018.50 and rising fast.  By the end of the day, it should have reached the top of the broken red channel at 2023ish.The best upside target is the white .886 at 2104.21 — which would necessitate a test of the purple channel midline at 2100.

In ES, the rising purple channel is much tighter.  Unlike SPX, it has been allowed to decline from time to time (after-hours, of course) which does a much better job of fleshing out its channel.  Here’s a close-up.  ES just completed a Bat Pattern……even though USDJPY has gone nowhere.But, CL sure has……though, it should run out of steam here.UPDATE:  2:10 PM

EURUSD and DX just tagged their .618s and should reverse here.USDJPY just tagged the SMA200 and should reverse.  SPX is headed for the purple channel midline and quite possibly our next downside targets. We’ve seen 5 previous tags of the red, dashed TL below.  It’s actually a channel midline that I proposed a few months ago.  None of those worked out very well for stocks.  So, after the dust settles and the algos fizzle out, look for SPX to head down to our lower targets.UPDATE: 3:34 PM

They just got SPX back above the morning’s highs via USDJPY and some help from CL. With USDJPY rolling over at red midline, I sure wouldn’t hold long overnight.  Short makes a lot of sense for those with the ability to hedge or keep a close eye.