Federal Reserve Chairman Powell cooed dovishly yesterday pleasing his investment bank masters. Powell plans to maintain easy monetary policy forever so stocks jump higher. The S&P 500 gained 9 points in the hump day trade. Typically, over the last decade as this obscene Keynesian financial experiment continues, the dovish Fed statements create 25 to 30 handles of SPX upside, thus, where's the other 21 points?
Perhaps traders are waiting for the second act to play out in the central banker double-header this week. ECB President Lagarde conducts her first major monetary policy meeting this morning. Super Mario is out to pasture. If Madame Lagarde delivers joy in this holiday season, the other SPX 21 points will likely appear creating new all-time highs. If Lady Lagarde delivers coal in the stock market stocking, the stock market may roll over and die, finally starting some serious downside for equities that is overdue for the last couple weeks or so.
Lagarde's words will move the euro. Since the euro and US dollar hold about 60% of each other's currency, the baskets move inverse to each other. The USD displays an H&S (head and shoulders) pattern while the XEU displays an inverted H&S (blue lines).
The US dollar has maintained the 97.05-ish support level for five months. If Lagarde is dovish, the euro will drop and the dollar will rise. If Lagarde is hawkish, the euro will bounce higher and the dollar will sink. Commodities typically rise as the dollar drops. All this is well and good, however, the dollar and euro charts hint at more sideways action ahead than anything.
If USD loses the 97.05 neckline, and the head is at 99.05, a difference of 2, the downside target is 95.05 if the neckline fails. For the XEU inverted H&S, with head at 1.09 and neckline at 1.1155, a difference of 0.0255, the upside target is 1.1410, if the euro can breakout above 1.1155. One now understands the importance and seriousness of Lagarde's speech today. Prices are teetering on the edge and her words will determine the path ahead. Lagarde is gulping down orange juice at the free buffet while an attendant is wiping a jelly doughnut stain off her blouse.
The 200-day MA's are support/resistance lines. Note that the dollar has already failed below the 200-day MA at 97.39. Price will likely want to come up and back kiss the 200 where it decides if it wants to truly fail, or, if it wants to jump back above the 200 and remain above. Conversely, the euro 200-day MA is at 1.1161 with price at 1.1132 not yet able to move above.
The 200-day MA will tell you a lot today and through next week. The euro and dollar will have to agree on the path ahead so either the euro moves above its 200-day MA to agree with the USD dropping below its 200, or, the dollar will move back above its 200-day MA to agree with the euro below its 200. One of them will flinch, perhaps in a few hours.
The outer standard deviation bands are violated for both currency baskets so the middle band at 97.82 is in play for the dollar and the middle band at 1.1057 is in play for the euro. It's all in Christine's hands now.
On the US broad stock market, the VIX was jammed lower in the final minutes of trading yesterday and remains below the critical 15.12-15.20 line in the sand (identified by the 200-day MA and the Keybot the Quant algorithm). The stock market bulls win going forward as long as the VIX remains below 15.12. The stock market bears win going forward if the VIX moves above 15.20.
At 5:50 AM EST, the euro, XEU, is trading at 1.1129 and the US dollar index, USD and DXY, the dixie, is at 97.15. Dollar/yen 108.65. Pound 1.3192. The UK election is in progress. Prime Minister Johnson's butt is on the line but he is expected to win. Bitcoin 7144. Gold 1479. Silver 16.84. Copper -0.2%. 10-year yield 1.80%. S&P futures +2. VIX 14.94. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added 6:14 AM EST: Euro 1.1128. USD 97.20. The euro is down a tiny hair expecting a dovish ECB so the dollar floats higher by a hair. Dollar/yen 108.666. Pound 1.3171. Bitcoin 7191. Gold 1475. Silver 16.92. Copper -0.3%. S&P futures +3. VIX 15.09. Look at volatility moving higher approaching the 15.12-15.20 resistance gauntlet. It is difficult for the Fed and other corrupt global central bankers to keep the VIX beachball underwater. Oddly, the futures are up one more point as volatility also climbs; one of them is wrong. China announces plans to support its economy no matter what occurs going forward (this news is hitting the tape). Markets are having trouble pricing in these soundbites since they have a cryptic nature. Investors wonder if they should simply keep buying stocks since the PBOC (China's central bank) now pledges easy money forever, or, is China announcing this message because the trade talks may fail and they are front-running the trouble telling their markets to not worry because rich Uncle PBOC is here to pat everyone's behiinds. Obviously, a failure with the trade deal that triggers more tariffs, which come into place on Sunday, would smack the US stock market. Traders are sorting out exactly what the Chinese soundbites say; it smells like a bunch of chop suey. The ECB rate decision is at 7:45 AM EST, Lagarde presser at 8:30 AM EST and US markets open for trading for the regular session at 9:30 AM EST. The festivities are set to begin.
Note Added 6:31 AM EST: VIX pops above the critical 15.12 level to 15.14. The stock market bears are stretching their limbs and paws and beginning to growl. Perhaps they view Lagarde as fresh meat? S&P +2.
Note Added 7:51 AM EST: The ECB leaves monetary policy unchanged as expected. Euro 1.1131. USD 97.16. The seesaw action in the euro and dollar continues. Lagarde's palms become sweaty; she takes the stage in about one-half hour. Dollar/yen 108.64. Pound 1.31666. Bitcoin 7177. Gold 1475. Silver 16.93. Copper -0.3%. S&P futures +2. VIX 15.19. The VIX poped above 15.20 for a few minutes and is now bouncing around inside the critical 15.12-15.20 bull-bear level. Global traders and investors await Madame Lagarde's comments. Lady Christine will stand before the huddled masses, extend her right arm, and provide a thumbs up, or thumbs down, dictating the fate of global markets, a la the days of ancient Rome and the Colosseum.
Note Added 8:04 AM EST: Euro 1.1131. USD 97.15. Dollar/yen 108.59. Pound 1.3173. VIX is above 15.20 to 15.24. S&P futures -4. Whoopsies daisies. That is a little bit of an air pocket. Dow -53. Nazzy -16. Russell -2. Copper -0.4%.
Note Added 8:31 AM EST: The flash bulbs are creating a strobe affect as Lagarde is on stage smiling for the cameras. Euro 1.1138. USD 97.15. S&P -3. VIX 15.41. Jobless claims are up big to 252K the highest number since late 2017. Are the layoffs beginning? The PPI data shows that inflation remains on a milk carton. Lagarde starts speaking at 8:32 AM EST and her track record at the European Central Bank begins.
Note Added 8:42 AM EST: Euro 1.1144. S&P -5. Dow -55. Nazzy -18. Russell -2. VIX 15.52. Copper -0.6%.
Note Added 9:22 AM EST: Euro 1.1142. USD 97.13. Bitcoin 7198. S&P -2. VIX 15.35. Copper -0.7%. Lagarde continues talking. Super Mario always kept his news conferences to one hour or less. The euro is slightly buoyant as Lagarde answers questions so her words are not viewed as dovishly as traders had hoped. The US market is set to begin trading in a few minutes. Some of the market softness is due to an analyst saying that iPhone sales in China are weak. AAPL trades lower.
Note Added 9:31 AM EST: US stocks begin trading and are slightly negative to begin the day. Euro 1.1142. USD 97.13. President Lagarde held her own; she's a pro and great communicator but the love affair may be short-lived. She sets an optimistic and positive tone. The central bankers are modern-day Money God's that control the price action inside The Temple.
Note Added 11:56 AM EST: The S&P 500 receives that extra 25 handles today. Soybean Donny rides to the rescue proclaiming that a US-China trade deal is "very close. They want it, and so do we!" The 'so do we' part catches your attention. Donny chooses a submissive position in the negotiation and clearly wants a deal. Trump knows it is now or never. Once 2020 begins, the impeachment trial and election campaign will take all the attention and a trade deal will be difficult. Also, over one-half of the states in the US are experiencing farm bankruptcies. These are all the hayseed's that voted for Soybean Donny. Trump likely wants to bring the trade deal to a close so the markets can rally into his re-election next year. Amazingly, Donny may cut the existing tariffs by 50% and cancel the tariffs set to start on Sunday, 12/15/19, to close on the deal. Comically, King Donny tweets the happy message minutes after the opening bell with the full intent of pumping the stock market higher. What a joke it all is; the final breaths of crony capitalism playing out in the months and few years ahead. The SPX prints a new all-time record high at 3176.28 now at 3157. Volatility drops so stocks pop. The VIX collapses below 15.20 and 15.12 creating stock market joy. Stocks are typically bullish through the full moon which peaked about 12 hours ago. Euro 1.1111. USD 97.40.
Note Added Friday Morning, 12/13/19, Friday the 13th, at 5:37 AM EST: The euro is at 1.1177. The pound climbs above 1.34 after the Johnson election in the UK. The USD slips below 97 to 96.83 as the euro rises.
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