By Richard Breslow, a former FX trader and fund manager who writes for Bloomberg
Mood swings have been fluctuating so quickly they resemble rapid-eye-movement rather than the expected ebb and flow of a normal market, such as it is in a QE world.
On Monday S&P 500 futures made a year-to-date high. On Tuesday we were told the market was in full “risk-off” mode. You guessed it, they surged Wednesday. This makes it, perhaps, worth taking a moment to try for some perspective from a technical point of view.
Caveat emptor, I reserve the right to trespass on the cardinal rule of technical analysis and introduce fundamental, political and sticker shock biases. It’s a luxury afforded those who don’t do this on a regular basis.
The dollar has been under a lot of pressure as the Fed pivoted dovish. Someone, and you know who you are, bought into the aggressive rate-hike story. The Bloomberg Dollar Index (BBDXY), it really is a better mousetrap, has been holding the 1180 level like a champ. It’s less than half a percent away. Below it, lick your wounds and reevaluate. Back above 1200 and the world looks different.
Will oil producers get their acts together? Don’t know. They don’t either. $34.50 up to $35 looks like decent close support. Use it as a pivot and ignore rig counts. It will also affect stocks so worth watching.
Bouts of not liking U.S. Treasuries makes us feel like mutineers, but until we get back above the crucial 2% pivot in the 10-year it’s more like being a rebel without a cause. It’s a high-yielder after-all. The failure there in mid-March looms large. See how it trades if it threatens 1.6%, because below we’re in something new is going on territory.
Why is the yen so strong? Because those desperate for yield, any yield, have rediscovered a favorite trade from the 1980’s. Using currency swaps to turn negative yield JGBs into positive yield synthetic New Zealand or South African paper. They had better be ready to hold on to maturity and live with the credit risk. More QE, my dear?
Yen at 112 versus the dollar is the big pivot. Yen looks outstanding on the chart and next target is the rocket shot from Oct. 31/2014 at 109. This trade takes a brave computer.
With market noise at a cacophonous pitch, it’s far better to lean on technical pivots and to keep it really simple. In this environment a chart really is worth 1,000 words.