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Friday Market Technical Review: Currency Watch

  • Written by Syndicated Publisher 238 Comments238 Comments Comments
    February 25, 2012

    On a day that the EUR was up over 60 bp (.60%) you would expect equity to rally. But conventional logic does not always imply. That’s why studying obscure currency pairs like the EUR/AUD the “risk off” currency up 100 bp and the AUD/USD the “risk on” currency down 22 bp will better explain why equity struggled to take out recent highs.

    Today was an excellent example of why you need to watch the currencies. As equity tries to breakout the currencies are reversing. The result any upside in equity is going to be that much more difficult. More in the weekly Market Video which will be released later tonight.

    Equity

    The Dow closed below 13,000 (a complete meaningless number but perhaps the world is not as safe as we once thought) and again found resistance at the top of the ascending wedge.


    The transports put in another bearish reversal. After leading the Dow higher early in the session the transports ended up closing at session lows and weaker by .40%. A rather bearish chart with the 10MA below the 20MA.

    EMD the mid cap futures was rejected again off the 2011 down trend line for the third time this week but did find support at the top of the ascending wedge.

    Oil

    WTI is on a tear and took back the 2008 up trend as if it never failed. This type of rise is not good for the economy nor the market but when and where it reverses is anyone’s guess. Next stop could easily be $115 before going higher.

    Copper

    Although up over 1% on the session copper does not look as bullish as oil yet it has recaptured the 200MA. Copper topped on 2/9 and is not confirming recent equity highs.

    Credit

    Ten year treasury futures were somewhat muted on the day but still remain in striking distance of all time highs.

     

    MUB the municipal bond fund put in a rather nasty reversal on Thursday although at 500,00 shares traded it is rather easy to move this security. It did follow up with another weak session on Friday though and since MUB correlates well with treasury this is a warning sign for credit. Volume although above average the past two sessions is still low enough that it is easy to move this security.

    It is possible that rumblings regarding state budget woes is causing recent weakness.

    Volatility

    The vix has been more volatile than equity. Figure that one out. On Thursday I discussed a pattern over the past five years where after breaking out of descending wedge patterns that the vix tends to double bottom prior to moving higher. We got close to that level today but not quite close enough so another pullback in the vix is probable.

    Bottom Line

    We remain stretched here as signs of reversals in other asset classes continue grow. We may get some interesting headlines out of Europe this weekend regarding PSI (private sector involvement) negotiations with bondholders.

    If you have time please watch the Market Video this weekend where we’ll be discussing currency which is signaling a storm may in fact be brewing even though it may appear there is not a cloud in the sky.

    Images: Flickr (licence attribution)

    About the Author

    Macro Story is designed as a one stop source for all of your macro related news and data.  From credit markets to economic data to geopolitics, you will find it all in a simple and organized fashion.  Content is presented in a format that allows you to read as little or as much as prefered.  Whether your goal is to do advanced research, a simple market overview or to become educated on macro subjects, the site has been designed with you in mind.
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