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Thursday, 15 July 2010

USD breaks support

USD broke support and down from the broadening ascending wedge overnight, which is very bad news indeed for the bear case this summer, and badly undermines the case for an ES top at 1099 reached in overnight trading on both of the last two nights.

That's not to say that SPX can't be in a wave down while USD is also in a wave down, after all SPX was in a wave up from December to April while USD was also in a wave up, but the best aid for a big move down in equities this summer would have been a strong wave up in USD taking it over 90, and that now looks very unlikely to happen. 

mmTesla was saying last night that trendlines should be drawn with crayon rather than pencil, and that there has to be some allowance for slight overshoots, and he's right, but as we stand the USD rally is probably over, and a break below 83 on DX would confirm that for me.


The mirror image wedge on EURUSD has broken resistance. On the break this wedge has a conservative target of 1.46 and three of the last four big wedges on EURUSD played out to target:


GBPUSD broke up from the declining channel since last October and the upper trendline was also declining resistance from July 2008, so that is a very bullish break indeed:


Strangely, 30 year treasuries have gone entirely the other way, with a big move up from support yesterday and a bullish engulfing daily candlestick. I no longer trust this move though because treasuries are strongly linked to USD. It is no accident that the big move up in treasuries this year has coincided with the USD rally:


On ES there was a move up last night to the previous nights high at 1099 and we seem to be forming a rectangle within the ES rising channel. Thanks to dreadwin for pointing this out on the SPX 15min chart yesterday and it has since also appeared on ES. Rectangles break upwards 68% of the time and the target for this one is 1113.5 ES.

While forming this rectangle after hitting the top of the rising channel at 1099, ES has moved below the centre line of the rising channel for the first time since passing 1040. I am now expecting a hit of the lower trendline of the channel before the rectangle is broken, and that would most likely be tomorrow near 1085. Until the lower trendline of the channel is hit, I'm expecting 1099 to be solid resistance and 1084.5 to be solid support.

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