USD, Stocks Talking Points:
It’s been a rough week for the risk trade and the US Dollar has continued to jump, now trading at a fresh 20-year-high.There seems a bit of disconnect at the moment between US equity markets and global FX markets. The Euro and Sterling are showing collapse-like moves. US equities, at least in the S&P and the Nasdaq remain above June lows as of this writing. It appears there will be some re-alignment in risk trends before too long.The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
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We’re nearing the end of what’s been a brutal week for the risk trade and there’s been a number of central banks reporting rate hikes, with perhaps a disconcerting theme showing up.
The UK hiked rates by 50 basis points yesterday and Sterling responded by spilling down to a fresh 37-year-low. And then this morning’s unveil of the UK budget didn’t seem to help matters much, as a program of energy subsidies and tax cuts merely helped to push the Pound to another lower-low against the US Dollar.
At this point, the US Dollar is a main driver as the currency has pushed to yet another fresh 20-year-high. From the monthly chart we can see a massive move in September as prices have made a decisive break above the 110.00 psychological level.
US Dollar Monthly Chart
Chart prepared by James Stanley; USD, DXY on Tradingview
This was a large driver in that USD move and what happened in the Euro this week is disconcerting. I had looked at this on Monday, lining up around the parity level that had continued to play a role in the matter.
But, by Tuesday, support was looking vulnerable ahead of FOMC and I talked about that in the report published that day. Price has since broken down to a fresh 19-year-low, invalidating a falling wedge formation along the way.
As for next support – there’s an item of interest around the .9600 level, as this was a prior swing-high turned swing-low back in 2002.
EUR/USD Monthly Chart
Chart prepared by James Stanley; EURUSD on Tradingview
Cable in Collapse Territory
Unfortunately there’s no similar context in GBP/USD as price is trading at fresh 37-year-lows. I had looked at bearish continuation scenarios in the pair yesterday from a short-term basis but a similar approach feels improper today after such an elongated move.
The big item of hope here is that the 1.1000 psychological level helps to stem the bleeding for a little while. RSI is at its most oversold since 2009 and while this is not a timing indicator, it does highlight the danger of selling at this point below the 1.1000 level, which may lead to a bit of stall or bounce in the matter.
GBP/USD Monthly Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
Stocks are in a dire spot but given what we looked at above, with both the Euro and Pound in the midst of collapse-like moves, the fact that the S&P 500 hasn’t even tested the June low feels like a bit of a mismatch.
I had looked at US equities coming into this week, with a bearish forecast after last week’s build of bearish engulf formations on the weekly charts. The June low in the S&P 500 appears vulnerable.
Bigger picture – S&P 500 next support below the June low could plot at either the 3500 psychological level – which is around the 50% mark of the pandemic move. Or around 3400, which was the pre-pandemic swing-high.
S&P 500 Weekly Price Chart
Chart prepared by James Stanley; S&P 500 on Tradingview
The Nasdaq is in a similar spot, sitting just above June lows which posted at a big spot on the chart. Next longer-term supports on my Nasdaq chart are at 10,500 and then a zone from the pre-pandemic high of 9763 up to the 10k psychological level.
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Nasdaq Weekly Price Chart
Chart prepared by James Stanley; Nasdaq 100 on Tradingview
— Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education
Contact and follow James on Twitter: @JStanleyFX
element inside the element. This is probably not what you meant to do!