The US market worked in full force yesterday, with the debt market returning to action after the long weekend. They retain the trends of recent weeks with pressure on equity and bond markets as investors continue to price in a tightening of the Fed’s monetary policy.
Since the beginning of September, there has been a clear downward trend in the S&P500. Unlike the correction episodes of recent months, we see what appears to be a reluctant slide. But it is this dynamic that has the potential to be the most dangerous trap for speculative bulls. The latter can link to buying on downturns, betting on a rebound after a correction.
More experienced investors and traders are likely to note that equities’ sell-offs have been noticeable in recent weeks as they attempt to rise from increasingly lower levels. The 50-day moving average has been in the role of firm resistance since the end of September, although it was strong support before.
It would not be surprising if the short-term buyers would lose their support in the coming weeks or even days, accelerating the corrective momentum and allowing the S&P500 to pull back from the current 4340 to the 200 SMA, which is now near 4170.
In the most traded currency market pair, there is an even more persistent downward trend. The EURUSD has rolled back to 1.1550 from the local peak at 1.1900 in early September, experiencing a systematic decline. Since late September, the RSI on the daily charts has been moving around 30, an oversold area, but that hasn’t stopped the single currency from rewriting its lows from last July.
As we pointed out earlier, there are no significant support levels in the pair up to the 1.14000 area. However, locally, one may notice buying on declines. A consolidation above 1.1600 by the end of the week may allow us to talk about breaking the descending trend and launching a broader rebound, but the bulls will have to try harder for that.
The Swiss National Bank, which is preventing the CHF from rising against the Euro, might be on the side of the Euro again. The EURCHF pair has formed a “floor” near the level of 1.07, approximately where it was in August. The SNB predominantly monitors the CHF against the Euro but doesn’t neglect the USD either. The USDCHF has been on an uptrend since August, so the intensity of the interventions against the Euro might weaken, reducing the support for the single currency. In any case, one hardly can expect the Swiss National Bank to reverse any meaningful long-term trends.