Currencies Raise a Red Flag; Is It Time for a Pause in the Stock Rally?
Although currency charts are the number-one concern right now, even bonds may be foretelling a pause in the rally in risk assets.
Euro headed lower in the very short-term; direction after that is less clear.
One of the “risk” currencies my firm follows, the euro, is acting less than bullish right now. The chart above shows a potentially very bearish “head & shoulders” top formation developing for the euro futures. There is a chance that the euro has already made the right shoulder top, in fact. However, there’s also still a chance that we see the euro make one more shot to the upside (following a little more downside in the very short term. Such upside would be wave “c” of an “abc” correction to the upside -- but there’s nothing to rule out that the “right shoulder” peak was already made (at the 1.3215 level on the chart). Overall, this chart cannot be viewed as encouraging for the bulls.
Aussie dollar is breaking down – a bad confirmation / sign for commodities.
The Australian dollar futures only wish they could be classified as “less than bullish” as the euro was in my comments above. After trying to break out above a long-term rising wedge formation, it appears that the Aussie dollar has succeeded in breaking down below the lower edge of that same formation. Not only was that lower edge violated, but the 100% “correction support” level of 0.9973 was taken out as well. That breach further opened up the potential for much more downside to come (in my opinion). This chart, like the euro’s chart above, is not good news for the bulls.
Canadian dollar may be setting up for a big fall, catching up with the Aussie dollar on the downside.
The Canadian dollar futures chart is shown above on a daily basis going back to late 2011. It appears to me that the CD futures just completed a short-term “abc” correction to the upside and that the next move should be a “doozy" to the downside. The best case for CD is for a move down to 0.9480 from 0.9879 currently. The more likely scenario would have CD falling all the way down to 0.9292 or 0.9175 for this move (wave “iii”). This, like the other risk currencies, is an ugly chart for the risk bulls to contemplate.
The miserable action in the “stuff” currencies (Aussie and Canadian dollars) has me fairly concerned about things globally. It’s hard to believe that the reflation efforts being undertaken by the global central bankers are succeeding when I see those two currencies acting as they are. What will happen if money starts flowing back into the yen once support is tested? That is absolutely something to keep in mind. Bonds are more bullish than currencies at this point, but even Treasuries may be setting things up for a short-term pullback / correction in risk assets.
My firm’s long-term portfolios remain unchanged -- fully invested. However, around that “core” portfolio, we are sprinkling in some hedging strategies to buffer the downside of the anticipated pullback.
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