Mon, Oct 03, 2022 @ 07:46 GMT
HomeAction InsightMarket OverviewSynchronous Dips in Stocks, Yield, and Dollar Raise Chance of Correction

Synchronous Dips in Stocks, Yield, and Dollar Raise Chance of Correction

US equities closed lower overnight as DJIA suffered the second triple digit loss since presidential election. DJIA closed down -111.36 pts, or -0.56%, at 19833.68. S&P 500 lost -18.96 pts, or -0.84%, to close at 2249.92. NASDAQ also dropped -48.88 pts, or -0.89%, to close at 5438.56. While a day of decline in thin holiday trading is not enough to warrant reversal in trend, the synchronous move with other markets suggest that the markets overall is turning into a consolidation phase. To be more specific, 10 year yield closed down -0.057 to 2.506. 30 year yield also lost -0.055 to close at 3.084. Dollar index is back at 102.90 after edging higher to 103.63. Gold breaches 1150 again, comparing to recent low at 1124.3. We’d probably see more consolidative trading ahead, at least before US non-farm payroll to be released on January 6.

10 year yield’s sharp fall now raises the chance of short term topping at 2.621, on bearish divergence condition in daily MACD. Focus is back on 2.424 near term support. As long as 2.424 holds, price actions from 2.621 are viewed as a brief consolidation and recent up trend should resume soon. Break of 2.621 will extend recent rise to next key resistance level at 3.036. However, break of 2.424 will confirm topping and bring pull back to 55 day EMA, now at 2.221, or even further to 38% retracement from 1.336 to 2.621 at 2.130.

S&P 500 could have also topped at 2277.53 after hitting medium term channel resistance. Focus in back on 2248.44 near term support level. Sustained break there would at least bring pull back to 55 day EMA (now at 2205.57) or even further lower to channel support. Nonetheless, firm break of 2277.53 will accelerate recent trend to 61.8% projection of 1074.77 to 2134.71 from 1810.10 at 2465.14.

Pull back in stocks and yield could drag down the Dollar in near term. The dollar index is having a similar technical picture, with bearish divergence condition seen in daily MACD. Near term focus is on 102.52 support. Break there would open up deeper pull back towards 55 day EMA (now at 100.55). Nonetheless, firm break of near term high at 103.65 will re-accelerate near term up trend to next projection target at 105.19.

As for today, Eurozone will release M3 money supply in European session. US will release trade balance and jobless claims.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3530; (P) 1.3564; (R1) 1.3590; More

USD/CAD breached 1.3588 briefly to 1.3598 but failed to sustain. Intraday bias is turned neutral first. We’d stay cautious on strong resistance from 1.3588 to limit upside and bring near term reversal. Break of 1.3471 support should confirm near term topping, with bearish divergence condition in 4 hours MACD. In that case, intraday bias will be turned back to the downside for 1.3080 support. Sustained break of 1.3588, though, will target next fibonacci level at 1.3838. Overall, price actions from 1.2460 low are still viewed as a corrective move.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is possibly finished at 1.3588 too after hitting 50% retracement of 1.4689 to 1.2460 at 1.3575. Break of 1.3005 would likely resume the fall from 1.4689 through 1.2460 to 50% retracement of 0.9406 to 1.4689 at 1.2048. We’d start to look for reversal signal below 1.2460 to complete the correction. In case of another rise, we’ll look for topping sign at 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
09:00 EUR Eurozone M3 Y/Y Nov 4.40% 4.40%
13:30 USD Advance Goods Trade Balance Nov -61.5B -61.9B
13:30 USD Initial Jobless Claims (DEC 24) 277K 275K
15:30 USD Natural Gas Storage -209B
16:00 USD Crude Oil Inventories 2.3M

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