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Currencies, Bonds, Stocks, and Cyprus: Charts Say One More Upside Attempt Is Due


I was surprised as many were last night when I tuned in to check out futures and currencies. Fortunately for the bulls, the market gods are giving them a reprieve in the short-term.


The Canadian dollar seems also to be in a short-term upside correction.

Just as with the Aussie dollar, the third of my "risk currency" tells, the Canadian dollar, also seems to be in the latter stages of a corrective move to the upside. With the Aussie and Canadian dollars correcting higher recently and the euro continuing to flounder, it should have served as an effective warning of bad news to come out of Europe (of course, hindsight is 20/20). Based on the Fibonacci price projection lines, the highest the Canadian dollar should reach on this move (assuming it's only a correction higher, which I feel is the case based on the rather ugly technical action leading up to this bounce) is 0.9811.

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My proprietary franc / krona tell still looks OK for the bulls – for the time being.

I have mentioned this indicator here before, and it once again has proven to be fairly reliable as a "risk on / risk off" indicator up to this point. The key to observe on the chart below is the middle graph which shows the spread ratio of the euro / Swiss franc versus the euro / Swedish krona (EURCHF: EURSEK). When that line is trending higher, all should be well in risk-land (one day sell-offs not withstanding). Right now, the trend is still higher for the indicator, so all seems to be well. However, it is easy to see where it would not take much to see that uptrend line broken, so it will certainly pay to stay alert.

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Treasury yields served as an effective warning sign. Was anyone listening?

The yield on the 10-year US Treasury Note (^TNX) failed to break out above the 100% Fibonacci price projection line for what may be an "ABC" upside correction. I have been harping on this lack of confirmation from bonds for a while now – eventually it matters. As I am (and as many in the 'Ville are) expecting another upside try by the bulls, it will continue to be part of the plan to closely monitor Treasury yields to see if they confirm or diverge from the action in equities.

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So the plan over the next 10 days or so will be to watch for a fifth wave move to the upside in stocks beginning just below 1,540 on the S&P (INDEXSP:.INX). That move should, in theory, coincide with modest bouces (continuations of bounces in some cases) in the euro, Aussie dollar, and Canadian dollar as well as in the yield on the 10-year US Treasury Note. Oh, only if things played out as perfectly as I lay them out in my mind. Whatever wrinkles are thrown at us will be handled by our own diligence and discipline. Stay alert out there!

Twitter: @seachangereport

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