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US Dollar Rally Resumes as S&P 500 Looks More at Risk to Reversal

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Asia Pacific Market Open Talking Points

  • US Dollar resumes rally as better-than-expected inflation report ebbs dovish Fed bets
  • EUR/USD declines as Eurozone industrial production contracts by the most since 2009
  • Asia Pacific stocks may trade little lower after S&P 500 shows multiple reversal signs

Find out what retail traders’ equities buy and sell decisions say about the coming price trend!

3 Things to Know Before Trading APAC Markets

1) US Dollar Resumes Rallying on Inflation Data

After a pause yesterday, the US Dollar resumed its uptrend from the beginning of February as it clocked in its best rise in a day since January 2 (+0.52%). A better-than-expected US headline inflation report helped contribute to this. Domestic government bond yields rallied, signaling a reduction in dovish Fed monetary policy expectations.

This may have weighed against equities to a certain extent, preventing a liftoff in the S&P 500 as it trimmed most of its gains and closed just 0.3% to the upside. This followed a rosy session in Europe where most benchmark stock indexes rallied. However, these were largely because of gaps to the upside. The Euro Stoxx 50 then proceeded to range.

2) Dismal Eurozone Industrial Production

Gains in the greenback weighed against the Euro which also had to contend with dismal Eurozone industrial production as expected. Output contracted by 4.2% y/y which was by the most since 2009. Economic weakness from Europe, with Italy in a technical recession and fears of a no-deal Brexit, leaves EUR/USD increasingly at risk to declines down the road.

3) Asia Pacific Market Open

As we head into Thursday’s Asia Pacific trading session, S&P 500 futures are aiming narrowly lower. This may precede a mixed to slightly underwhelming day for regional bourses. Especially if markets start feeling more concerned about Fed rate hike bets. The anti-risk Japanese Yen could thus be offered a chance to recover on some losses while the pro-risk Australian and New Zealand Dollars fall.

JPY showed a minimal reaction to the preliminary Q4 GDP report (see calendar below) given that economic data out of the country tends to have a minimal impact on BoJ policy bets. Meanwhile, at an unspecified time today, China is expected to release January’s trade data. Fears of growth slowing there and data tending to underperform relative to economists’ expectations may result in a soft outcome.

S&P 500 Technical Analysis

The pullback in the S&P 500 on Wednesday as it trimmed most of its gains resulted in the formation of a shooting star candlestick. This is typically seen as a sign of indecision. Closes to the downside thereafter may lead to a bearish reversal. On top of this, negative RSI divergence warns that upside momentum is fading. Fundamentally, the index seems to be running out of reasons to rally.

S&P 500 Daily Chart

US Dollar Rally Resumes as S&P 500 Looks More at Risk to Reversal

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US Trading Session Economic Events

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Asia Pacific Trading Session Economic Events

US Dollar Rally Resumes as S&P 500 Looks More at Risk to Reversal

** All times listed in GMT. See the full economic calendar here

FX Trading Resources

— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



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Forex

Traders Net-Short Are 63.3% Higher from Last Week

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US500,SP500

TRADERS REMAIN NET-SHORT

US 500: Retail trader data shows 24.6% of traders are net-long with the ratio of traders short to long at 3.07 to 1. In fact, traders have remained net-short since Jan 07 when US 500 traded near 2473.53; price has moved 11.9% higher since then. The number of traders net-long is 1.7% higher than yesterday and 1.6% lower from last week, while the number of traders net-short is 5.2% higher than yesterday and 63.3% higher from last week.

For more in-depth analysis, check out the Q1 2019 Forecast for Equities

S&P 500 SUGGESTS STRONG BULLISH BIAS

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests US 500 prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger US 500-bullish contrarian trading bias.

— Written by Nancy Pakbaz, CFA, DailyFX Research

Follow Nancy on Twitter @NancyPakbazFX



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On to the Next Big Levels of Resistance

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S&P 500/Dow Jones/Nasdaq 100 Technical Highlights:

  • S&P 500 nearing 2800-area, several swing-highs from last year
  • Dow Jones 26k-ish stands between it and record highs
  • Nasdaq 100 trading around resistance already

Check out the forecasts for Global Stock Indices and other markets on the Trading Guides page.

S&P 500 nearing 2800-area, several swing-highs from last year

The S&P 500 is continuing to show impressive strength since its v-bottom began the day after Christmas, with it having a few points along the way where it could have been stopped in its tracks. But it wasn’t, and this has levels prior to the December swoon in view. The area surrounding 2800 is a big one.

From 2800 up to 2817 there were three peaks created from failed rallies, a logical area, with the rally having come this far, to look for stocks to weaken from. Watching price action will be key, as always, but especially around the levels just ahead.

While resistance looks likely to get tested soon, the upward channel structure over the past month will keep stocks pointed higher for as long as it holds. If the S&P is rejected off resistance, to further bolster the notion of a sizable retracement we’ll need to see the underside parallel undermined.

For now, the top-side must be respected, but the time for material weakness may be nearing…

Stocks are rallying, but will it last in the long-term? Find out where our analysts see stocks headed in the Global Equities Forecast.

S&P 500 Daily Chart (2800/817 big spot)

S&P 500 daily chart, 2800/817 big spot

Dow Jones 26k-ish stands between it and record highs

The Dow is nearing the 26k-area, a spot which is basically the equivalent of what 2800 is to the S&P 500. The zone runs up to near 26300. The focus is primarily on the S&P right now as it is the broader index, but depending on how price action plays out, the Dow may be the better index to short at some point if it shows relative weakness to the broader market.

Dow Daily Chart (26k-ish stands in the way)

Dow daily chart, 26k-ish stands in the way

Nasdaq 100 trading around resistance already

The Nasdaq 100 continues to lag behind, which is something to continue monitor given it was the bull-market leader with its leading group of stocks – FAANG – dominating price action and sentiment. The NDX is trading around the 200-day and near late-year swing highs equivalent to the ones discussed with regard to the S&P 500 and Dow. So far, relative weakness is making the 100 the preferred fade if the S&P finds material selling off resistance surrounding 2800/17.

Nasdaq 100 Daily Chart (trading around resistance)

Nasdaq 100 daily chart, trading around resistance

To learn more about U.S. indices, check out “The Difference between Dow, Nasdaq, and S&P 500: Major Facts & Opportunities.” You can join me every Wednesday at 10 GMT for live analysis on equity indices and commodities, and for the remaining roster of live events, check out the webinar calendar.

Tools for Forex & CFD Traders

Whether you are a beginning or experienced trader, DailyFX has several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX



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Aussie Dollar Falls on RBA Minutes, US-China Trade Talks Eyed

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TALKING POINTS – AUSSIE DOLLAR, RBA MINUTES, ZEW, TRADE WARS, CHINA

  • Aussie Dollar, commodity bloc FX down on downbeat RBA meeting minutes
  • Germany’s ZEW survey may compound worries about slowing global growth
  • Trade wars in focus on US-China negotiations, fears of US auto tariff hike

The sentiment-linked Australian, Canadian and New Zealand Dollars weakened in otherwise quiet Asia Pacific trade. The move appeared to be inspired by an ominous tone in minutes from February’s RBA policy meeting. Meanwhile, the US Dollar corrected gently higher.

RBA officials cited “significant uncertainties”, noting that trade tensions and cooling domestic demand have increased negative knock-on risks from China. They added that consumption may fall if domestic house prices fall much further. They suffered the worst drop since 1983 in the three months through January.

TRADE WAR DEVELOPMENTS, GERMAN ZEW DATA MENACE MARKETS

Looking ahead, Germany’s ZEW survey of analyst sentiment may compound the downbeat mood, especially if it echoes the disappointing trend in regional data outcomes since September. A small improvement in the forward-looking Expectations index is nevertheless expected to keep it within a hair of six-year lows.

The tone of US-China trade negotiations may also be formative as a delegation from Beijing arrives in the US for continued talks. Both sides painted a rosy picture earlier in the week, but the Trump administration may be preparing a spoiler as the President ponders raising auto import tariffs.

What are we trading? See the DailyFX team’s top trade ideas for 2019 and find out!

ASIA PACIFIC TRADING SESSION

Asia Pacific Trade Economic Calendar

EUROPEAN TRADING SESSION

Europe Trade Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter



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