Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Opportunities in Gold, Stocks and Currencies on Increased Global Risk Appetite

Stock-Markets / Financial Markets 2009 May 08, 2009 - 05:11 AM GMT

By: Ashraf_Laidi

Stock-Markets

Best Financial Markets Analysis ArticleYou must have read by now that about 70% of activity in currency markets over the last 2 years has been largely driven by risk appetite, with equity indices being the primary independent variable steering FX flows. But there are times when currencies peak or bottom 2-3 days before equities begin to turnaround. The more resounding and recent example was the March 4th bottom in the EURUSD (peak in the US dollar), which occurred 2 days before the low in the major stocks indices.


That low in the EURUSD coincided with the peak in the US dollar index at 89.62, which happened to fall right below the 38% retracement of the major decline from the 2002 high (top of dollar bull market) to the all time low of March 2008. On March 10th, we warned the dollar index would reach today's level of 84, 10 year yields would exceed 3% and S&P500 would regain the 800 level, with each level prominently displayed.

So does today's euro test of its 200-day MA for the first time in 9 months forewarn a looming top in equities? Various measures of sentiment suggest the current 35% rally in the S&P500 from its March lows has the configurations of a typical bear market rally, where sentiment is 3x as much as as that of bull market rallies. What may have been an attractive proposition to buy stocks 8 weeks ago when indices were at 17-year lows has turned into a momentum trade fuelled by the helium of second derivative, postulating that slowing pace of contraction warrants the fastest (magnitude over time) bear market rally in history. Will stocks be right to rally another 3% on Friday in the event that US jobs turned out to lose only half a million instead of the forecast 600K?

Today's ECB announcement to buy covered bonds triggered a knee-jerk drop but the decline in US jobless claims towards the 600K level (lowest since Jan) further boosted risk appetite at the expense of the dollar, yen and bond prices and to the benefit of EUR and commodity currencies. Considering the risks that the current market recovery (rising equities/falling dollar) may be overdone, Forex markets are increasingly cautious whether to the push the envelope beyond the 200-day moving average (best measure of long term trend). EURSD's rally stopped right at its own 200-day MA ($1.3470), while S&P500 remains 40 pts below its 200-day MA (960).

GOLDEN IMPLICATION: As metals (and rest of commodities) embraced the green shoots story and managed to rally along with stocks over the past 2 weeks, a possible win-win scenario emerges for metals (gold and silver), whereby (i) further gains in equities would fuel metals on improved global risk appetite (what's good for China is good for metals) and (ii) any retreat in equities (and banks) could fuel the rotation from financials into metals and ETFs; and (iii) each of the 3 attempts to break below gold's 200-day MA have failed over the past 4 weeks. $935 appears as the initial target for gold, followed by $975. A clear break of $1,100 isn't seen until end of Q2.

With the EURUSD testing its 200-day MA, the FTSE-100 doing the same and the S&P500 and Dow not far behind, measures of risk appetite in FX and equities are pushing the envelopes. The trade in gold and silver is already taking place. In FX, scaling up short positions n CAD, NZD and GBP vs USD and JPY could well be the emerging FX trade as each bank sets to make the case with its own version of stress tests. Click here for more trades and analysis on FX, yields and indices.

By Ashraf Laidi
AshrafLaidi.com

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.

Ashraf Laidi Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in