In my update yesterday, I mentioned about increasing IPOs and M&As are prelude to stock market top. I have friends asking if its imminent. My answer is quite simple, I will not be able to put my finger on the date, but it is an early signal. Google and read on the reasons for previous market crashes and one will gather that there had been a consistent pattern besides interest rise. However, I do not see a sharp selloff if that was what many would tend to expect. Instead it may be a long protracted downturn as we are not as leveraged as we used to be. It can be sharp if central banks decide to drain the liquidity out of the market after years of quantitative easing but that should not be the likely scenarion for now.
If stock markets were to turn down, does that imply that the USD will move higher? My answer will be.... not necessarily as this correlation could break down. We can discuss on this topic the next time.
For now, market will be watching closely the U.S. poll results as we get nearer to election day, as it can affect the currency positioning ahead. Based on current level, E$ has factored in QE Infinity, a Mitt Romney victory can drive the E$ down to 1.26ish. But that may not imply a change in underlying bullish E$ trend that I continue to subscribe to. If poll results are not showing any clear signals whatsoever, the probability of E$ trading within 1.2800 to 1.3170 is high.
No update on the market order book for now and these information is based on what had been gathered the evening before as an indication:
Stop loss: 1.2990-93, 1.3000 and 1.3100
Limit: 1.2980 and 1.3000 (see graph)
Technically, shorter intraday indicator is close to extreme o/s level and that should provide some support for now. Momentum is suggesting consolidation, but since price is close to the lower band, there should be some support around the 1.3010/20 for a rebound. This scenario is also supported by the daily bullish piercing pattern. The only conflicting signal is the break in the trend lines (see graphs below).
In summary, I shall maintain trading the range with a skew to favor selling into rallies. The expected trading range for today 1.2990/3010 (1.2960/80 news induced) to 1.3100/10 on first test. Remember to stay disciplined and nimble in a more fundamentally driven market ahead.
All the best!
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| E$ 2hourly chart - Trading below trend line |
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