Right now, it appears that we're seeing US interest rates tumbling back down to the lower edge of the recent range, which is, in turn, weighing on the US Dollar Index. That downside pressure on the DXY as well as the recent move out of risk has buoyed the yen as well. What is interesting is that the strength seen in the chart of the yen futures (not shown today) is almost exclusively due to the weak greenback. A quick look at the Aussie dollar / Japanese yen shows the yen showing up very poorly versus one of its regional neighbors' currencies.
So, what does all of this mean to the investor trying to make a buck without getting whipped around too badly? Let's scan through the usual suspects to try to generate a macro thesis in which we can believe and off of which we can invest and/or trade.
STOCKS: POTENTIAL FOR MORE DOWNSIDE, ALTHOUGH BULLS TRYING TO HOLD THEIR GROUND
S&P futures show the bulls trying to stand their ground at the first Fibonacci support.
The chart below shows the S&P (INDEXSP:.INX) e-Mini Futures continuous contract going back about a year. Based on my work, the "minis" appear to be either in the middle or at the end of a wave "(((iv)))" correction to the downside. My call has been for a correction to occur that lands the "minis" down near the 1760 level. The reason for that specific level being my pick for support versus the other Fibonacci retracement lines is that in order for wave "(((v)))" (which I believe will eventually make it up to 1926 or so) to roughly match wave "(((i)))" in magnitude, the "minis" would need to pull all the way back to the 1760 - 1769 range. So, unless the peaks set Wednesday and Thursday are taken out on the upside, color me a seller of the S&P e-Mini futures on any rallies to near 1838.
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BONDS: ARE THEY CONFIRMING MESSAGES FROM STOCK CHARTS?
The Yield on the 10-Year US Treasury hinting at even more downside (for both yields and stocks).
Just as with the S&P futures chart shown above, the chart of the yield on the 10-year US Treasury note is currently appears slightly oversold but also shows the potential for yields to drop further before critical support is tested. Right now, with the 10-year sitting at near 2.639% (as of 10:43 p.m. EST on April 14), it appears that it can eventually touch down at around 2.461% before completing the "abc" correction to the downside as labeled on the chart below. This would seem to play well with the idea of stocks tumbling a bit further before all is said and done.
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FOREX: RISK CURRENCIES NOT UNIFORM IN THEIR MESSAGES
The EURJPY also shows the potential for some more downside action in the near-term.
The chart below shows the euro / Japanese yen (EURJPY) currency cross going back to last summer. This looks like another macro "abc" correction to the downside in progress. That is not to say that EURJPY cannot jump a bit in the short term -- it clearly can as the %R and RSI oscillators are not even close to "overbought" readings. I personally will be using any rallies to near resistance to initiate or add to shorts in the EURJPY in anticipation of a move down to at least the 135.193 level (from 140.741 currently). The prudent move, however, is to wait for "overbought" readings to pop up on the %R indicator and/or the RSI indicator. This short-term bearish outlook in EURJPY fits right in with the short-term bearish outlook for stocks and US Treasury yields.
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The AUDJPY cross is painting a very bullish picture for risk assets.
The other key risk gauge in the currency markets typically has been the Aussie dollar/Japanese yen (AUDJPY) cross. The chart below shows a much more bullish picture of the AUDJPY in the near term. The most bearish thing I can say about AUDJPY right now is that it might consolidate / correct for a bit longer before yet another leg higher. Right now, it appears that the cross is in the midst of a wave "(iv)" correction to the downside with either 95.242 or 94.462 as the likely support levels. So far, the 95.242 level has worked just fine as support. It appears that the folks in that part of the world are forecasting more misery for Japan and perhaps some renewed enthusiasm for the Aussie economy (at least on a relative basis).
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WRAPPING IT ALL UP
So, to wrap it all up in a neat little package, right now I'm seeing some potential for more of a decline in stocks and US interest rates -- and by extension, the US dollar. Such a decline will obviously take out the lows set late last week. Additionally, I am seeing a corresponding weak setup in the euro / yen cross as a confirmation for the short-term prognostication for stocks. However, the one conspicuous divergence that keeps popping up is in the Aussie dollar / yen cross -- which is only showing the potential for near-term consolidation before more upside is expected.
If I had to feed all of the evidence into a machine, the likely output would be a warning about ongoing recent weakness for the short-term and a forecast for sunnier skies once this correction runs its course.
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