It’s been another excellent week as the markets overall continue with their excellent trending phase, in particular the currency markets where the dollar continues to gain and rise to levels not seen in years. In the case of the Euro, the dollar has pushed it down to its lowest level since 2003 and there is still no evidence of a bottom, even though sentiment is extremely negative towards the Euro, something that often precedes at least a decent bounce higher.
The week ahead could see some volatility in the markets as the Greek election results may impact Monday’s open and have an influence on the currency markets, as well as of course the 2-day FOMC meeting on Tuesday and Wednesday this week.
The Dax remains by far the strongest of the stock indices that we trade at LS Trader, and is currently the only one of four indexes where we have a position, long. This week saw a continuation of the rally that began on the 15th January and has now seen the Dax advance some 1128 points in the space of just 7 trading days, less than 2 weeks! Bullish sentiment has risen to 95% and the RSI is up to 72.82, very much in the bull range. There are no signs yet that a top is in in spite of extreme bullish sentiment, so we will continue to ride the trend until evidence to the contrary.
The S&P 500’s rally, that began with a bullish engulfing pattern during the prior week has continued this week, but has not been able to advance sufficiently to test the all time highs at 2088.75 basis the March e-mini contract. The long-term trend is still very much up and the RSI remains in the bull range having bounced off the 40-bull market support level. Whether we see new highs remains to be seen. A move above 60 on the RSI would indicate that we probably would.
Gold completed the trend change to up as expected, but has been unable to follow through. The RSI reached a bullish 75.82 on Thursday, the day of the high, but the market dipped back below the $1300 level and closed below it on Friday. The trend is now up and the RSI is in the bull range as it has been since the range shift earlier this month. This all points to higher prices in the longer-term, but price action has not been so convincing since the breakout.
It’s been a big week for the dollar, which has seen the dollar rise to multi-year highs against nearly all of the majors. Bullish sentiment on the dollar index has risen to 96%, an extremely high reading, but there is still no evidence of a turn, and the right play is to continue to ride the trends until there is evidence to the contrary.
The dollar has been so strong against the Canadian dollar that the RSI has risen to 90, its highest level in almost 30 years according to my data! Obviously at the time the dollar was much stronger than it is today, but that does go to show how much further room to the upside there could be over the coming years.
The other commodity currencies of Australia and New Zealand have fallen to new lows for the current move, and Euro has fallen to its lowest level since 2003. The Pound also dipped below the $1.50 level, a level not seen since the middle of 2013.
Interest rate futures
Interest rate futures have all struggled this week but it’s interesting to observe that the RSI has bounced from the 60 level in all markets, which keeps the sector very much in the bull range in spite of weakness seen this week, which has been considerable. The long-term trend remains up and the RSI is in the bull range and price support is holding. However, price support levels may be tested this week, especially considering the FOMC meeting, which has the potential to move these markets around, even if after the noise the trend remains as before, which is often the case.