Diary of a Financier

Currency markets about to make waves

In Capital Markets on Thu 21 May 2015 at 16:19

Major currencies are on the brink of big breakouts or breakdowns.  The aggregate picture would suggest a USD breakdown, but waiting for the signal before reacting…

~~~~

Euro ($EUR)

EURUSD daily H&S bottom w R shoulder support @ 1.11 & 1x bull divergence should rally up to neckline resistance ~1.15 and breakout/down; weekly nearing bull reversal.

EUR daily/weekly

Yen ($JPY)

USDJPY daily ascending triangle w 1x bear divergence will test resistance ~121.8 and breakout/down; weekly LT 4x bull divergence.

JPY daily/weekly

US Dollar Index ($DXY)

DXY daily H&S top w R shoulder resistance @ 95.6 & 1x bear divergence should test neckline support ~93.5 and breakdown/out.

DXY daily/weekly

~~~~

As I’ve noted, weak economic data has persisted in Q2.  In a sea of bad reports, only the recent spike in housing starts shows any semblance of green shoots.

That leaves the following conundrum:

“We’re back to the ‘bad is good’ environment [with the risk to the upside for equities], because weak economic data provokes Fed dovishness provokes USD devaluation provokes upward earnings revisions provokes multiple expansion.”

Tomorrow features some potentially important developments:

8:30 Consumer Price Index (CPI)
13:00 Janet Yellen speech

The former is April’s last chance to show signs of recovery.

The latter is interesting because the Fed Minutes released this week effectively ruled-out a June Fed Funds rate hike, but expectations are still that the Fed “is in lift-off mode” for September — as colored by the rhetoric from regional Fed governors.  Chairwoman Yellen’s comments are expected to communicate as much.

Again, at this point, the risk is to the upside for US equities and to the downside for the dollar, as evidenced in the charts above.

–Romeo

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