A Quiet start to the week yesterday but it still gave us a new all time high in the Dow Jones 30 and a new YTD high in the S&P 500 at 1556. The market is still drifting upwards on low volume and maximum complacency and with the market so close to the all time highs of 1576 it must be a matter of days not weeks or months before we reach this level. Stocks have been so bullish all year with a rotation from commodities and bonds into the better returns of the stockmarket have given us a parabolic upmove that shows no sign of stopping. Trying to pick the top is a very dangerous game which we would not advise. A buy the dips strategy is the only option until some macro news gives us a reason to switch.
Dollar strength has been one of the main stories in the last 6 weeks as the correlation between a weak dollar and a strong stockmarket was broken and now the two are making new year to date highs together. This shows how bullish the U.S. has become. We would struggle to find anything to not be bullish about in The States this year as their economic data has been extremely impressive and their political situation seems to be coming to a positive conclusion. The strange thing is that any bad news in the upcoming months or unforeseen risk events will most likely cause the dollar to become even stronger. This is all happening in a zero interest rate environment with the Fed printing $85 billion a month and with trillions on its balance sheet!
Yesterday in the Markets was the exact same trend we have seen all year, Sell Yen, Sell Sterling and Buy the American Stock Market! Getting a bit boring isn't it! The move in USD/GBP happened in the morning when it broke through the 1.49 handle and posted new year lows of 1.4867, their was no follow through and when the stock market started to rise in the early afternoon it came off its lows and re took the 1.49 handle. This is a pair that is extremely oversold and will most likely have to bounce to 1.52 before we consider entering another short position. USD/JPY traded in a 20 pip range for most of the Asian session and into the European morning but found a pulse when the S&P 500 broke back through 1550 and made its way to highs of 96.7 in the late evening as rumours of more easing from the BOJ were seen.
The EUR/USD is sidelined and is trading in a range between 1.305 and 1.297 and may continue like this until we see some additional fundamental news to kick start this pair again. However we believe this pair may be supported very well from the 200 day moving average at 1.284, a weakening Yen and the Dollar index that has is coming to some long term resistance points.
Just an additional note to say that for the rest of the month the U.S. markets open at 13 30 GMT and closes at 8 until the the Europeans catch up with daylight savings at the end of March.
Good luck in the Markets and the very best of Luck in Cheltenham today and for the rest of the week!!!
Lowkey
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