- The US markets opened after the long holiday weekend Tuesday, but the SPX slip ended a 6-day passive recovery from Feb's slump
- A near-decade high in yields has warmed rate forecasts in the US, but doesn't seem to do the same for the Dollar
- Commodities have some of the most impressive technical pictures with Gold dropping after a range rejection and Crude failing at 63
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US Equities Start Their Week With Lost Momentum
Tuesday was the official start to the week for the S&P 500 and US markets following the long holiday weekend. And, there was a heavy mantle to bear for the benchmarks of sentiment. Through the previous close (Friday), the S&P 500 notched six straight days of advance. While that was an encouraging run, it was still far short of the performance necessary to promote genuine enthusiasm amongst bears. Why? That impressive stretch of gains followed one of the most painful losses for the US capital markets in over five years. When market participants were put on the spot, their confidence wilted. Tuesday's loss for the Dow and S&P 500 were modest - as was the gap on the open - but it was a crucial loss of momentum for a recovery effort that was more heavily dependent on speculation than fundamentals. So, while it may not signal an impending collapse, it breaks the air of complacent confidence that has proven so important to market performance over recent years.
Dollar's Slow Rebound Continues While Yields Swell
The Dollar's nascent recovery continued into a third day this past session, but there is still little sign that we are looking at the charge for an imminent bullish breakout. Technically speaking, the ICE Dollar Index is still comfortably trading within the narrow range it has developed over the past month which is itself mere consolidation following more-than-a-year of bear trend. The same limitation to ambition is readily registered from EUR/USD below 1.2600, GBP/USD and USD/JPY. Yet, where conviction may be light, interest in the Dollar has certainly benefit from headlines in US yields. The US Treasury auctioned off a range of paper with different maturity Tuesday, but the highest yield for 2-year notes since August 2008 stood out to global investors. This is the same trend we've seen in implied yields via Fed Fund futures and circles back to rate forecasts that are otherwise performing extraordinarily well. The problem is that they have not translated into significant Dollar gains - much less trend. Rate forecasts are improving, but that simply isn't the primary driver for speculative interests at the moment.
Event Risk for Euro, Pound and Aussie Ahead
'What is driving the Dollar' is a question that will continue to confound traders that are looking for a clear bullish or bearish move from the benchmark currency. I doubt the PMIs or modest Fed speak on deck tomorrow will resolve this uncertainty. In the meantime, there is more productive interest for some of the other majors. This past session, the Euro slipped broadly with a retreat in investor and consumer sentiment along with the suggestion that EU Finance Ministers took issue with the US tax plan at their meeting. Yet, what has been more influential in the past year is arguably political stability and rate speculation. With that said, important country elections are still building and the ECB minutes to the surprise dovish outcome in January are due Thursday. And, if we are looking to short-term shock value on the fundamental side, the New Zealand PPI offered little juice to jolt an already unfolding NZD/USD reversal; but perhaps the Aussie 4Q wages and construction figures can draw more from AUD/USD, EUR/AUD or AUD/CHF.
Oil and Gold Abiding Appealing Technicals
Commodities have not been the most prominent asset class in terms of fundamentals or dramatic price action over the past few months, but there are some striking technical patterns being staged right now. Gold had already held and retreat from a failed effort to run $1,360l - a long-term trendline and range resistance - but this past session's nearly 1.2 percent drop was a strong signal of confirmation that the range reversal was underway. Whether it carries through or not is likely dependent on the Dollar and US yields. While the intensity of US crude oil's own drop this past session was not nearly as intense, the size of the bearish gap on the open and the tail left below resistance (former support) will register to the increasingly technical-oriented traders in this market. We discuss all of this and more in today's Trading Video.
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