Breakfast Blog

Morning Traders! What a volatile day we had yesterday across all equity indices and currency pairs! Once the ECB decided to leave rates unchanged we saw a small pop to 1.3575 in the EUR/USD then almost immediately it started to weaken, once Mario Draghi started to talk a complete EURO sell off began, with the euro loosing 200 pips to 1.3375. Draghi didn't even give any hints of a rate cut but it appeared the market had been overly long the Euro and it may have been an excuse to take some profit and take the overbought out of the market. The Euro has been very quiet since this sell off and trades at the 1.34 handle.
This sell off was not a shock, there had been warning signs for the last couple of days with political turmoil in Spain and Italy combined with rising bond yields.
The American equity market looked strong in the morning but topped out at that 1515 for the third time, this is becoming a huge resistance barrier which the market cannot overcome. The market is tired, is running off low volume, and has been making volatile up and down moves for the past week. This is generally the sign of a top however when the S&P 500 started selling off from the market open yesterday it was not able to lose the important 1498 level, it stalled here twice then bounced back to 1509, where it trades now in premarket activity. It is essentially stuck in a range and needs a catalyst to move higher or lower. We would not advise buying this market.
An indicator we look at to determine equity positioning is Yen strength, the weaking Yen has been fueling the    American equity market. The USD/JPY pair have stalled at the 94 handle and has made a Doji shaped candle on the daily charts for the last 2 sessions, it is also extremely oversold and has weakened a lot over night to break through the 93 handle on the downside. We would not recommend shorting this pair because when a currency pair is in such a parabolic uptrend you either go long the dips or sit on the sidelines. A strengthening yen will help to cause a correction in stocks. February and March is a typical time of the year to correct after the great run we have had in January.
Levels to look out for on the S&P 500 are 1498 downside and 1515 topside. 1505 could also be seen as some support on the downside.
Best of luck in the Markets! Lowkey