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  • Writer's picturen ev

US rips in Risk-Off environment as the market considers US rate hike cycle.

A stronger US dollar is going to upset a few trends but as day traders at least we have some volatility and movement to try and find a trade with. Being willing to stand aside a day or two is probably a good idea as we wait for either a new trend to establish or for a timely reversal in these current moves.

Market Wrap

UK coronavirus cases are rising again as the new variant continues to disrupt things, though currently, the tests have been on 1.1 million people, of which 11,000 have contracted the disease, 222 were hospitalized and 19 have sadly died. The UK government has already extended the lockdown measures for another month and will be concerned that the rates of infection are back to February levels.

The British pound may be taking a bit of a dip on this bad news, but the US dollar’s bullishness is a larger driving force currently. 1.3665 on the GBPUSD is the major low, which if broken will signify a larger correction to me. Before we get to that level, we should test the daily 200 ema and there is a chance that the previous swing lows could act as a demand zone as they get tested. The range we have broken down out of, could of course be a distribution phase, in which case the bears are loaded up and these levels of support won’t hold on the first time of asking.

The FTSE 100 has ended the London session towards its lows for the day and is following most risk-on assets lower after the news we have received in the last 24 hours.

The US jobless claims have broken a 7-week lower trend and posted 412k people claiming unemployment benefits. Up from the previous reading of 375k and is the highest figure in 4 weeks.

Markets are moving now that we have the FOMC out of the way and so far, the sentiment is that the Fed is more Hawkish and that the rate hike cycle in 2023 will happen. Markets are forward-looking and will look to re-price on new data and last night’s announcement may be enough. No real technical changes have occurred on the higher time frames yet, but with moves as big as this it won’t be long before we start testing some significant swing highs and lows.

The longer-term bonds are breaking higher, as shown in the TLT. For a while now the bond ETF has been looking like it was in an accumulation phase, but with volume, we are now expanding higher and look likely to correct the big down move which originated from August 2020. The US dollar is basically a zero-term bond and as it rises the US Treasuries tend to rise out along the curve too. Making a move even higher in the US dollar seems more likely now.

Something is up with the Dow Jones Industrial Average (red line) and the Dow Jones Transportation Average (black line). Dow Theory basically says that a bullish trend is confirmed when one of the averages makes a new higher swing high, and then the other average confirms the same higher highs. Unfortunately for bullish investors, the two indices are showing lower confirmed highs, and if we get a new lower swing low on the DJIA that could be a real signal for the end of new all-time highs for a while.

The Dow Jones is now at a 4-week low and when compared to the DXY (black) there does appear to be an inverse relationship between the DJIA (orange) and the US dollar.

As the US dollar rises, commodities across the energy, metals, and precious metals tend to fall, though copper and zinc held above their opening prices today. Oil is down -2.70% for the day.

Canadian CPI year-on-year has risen to 3.6% and above the expectations of a 3.5% reading. The USDCAD on the daily time frame is now clearly above the 20 and 50-period ema’s and should it cut through the 1.235-1.250 zone formed in April 2021, the 200 ema may be the last dynamic resistance level to consider a short from.1

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