Pre-Market: US Stocks Return on a Bearish Note after Long Weekend as Dollar Rallies

After the hectic session on Friday, US equities took a long break thanks to the Presidents’ Day yesterday, but the technical setup that we have been monitoring remained intact. The major indices formed a short-term top exactly in the Line-In-The-Sand area that seemed likely to stop the post-crash rally at least temporarily.

S&P 500, 4-Hour Chart Analysis

The key levels to watch during today’s session will likely be 2735 and 2700 in the S&P 500 (25350 and 24800 in the Dow), but below 2735 the benefit of the doubt is on the bears’ side.

So short-term, we continue to lean on the bearish side here, at least short-term and we expect the market to head for a test of the correction lows in the coming period. European and Asian markets continue to underperform their US peers, despite the strength in the Dollar, and that doesn’t bode well for bulls, as Europe has been spearheading the decline so far.

Dollar Still in the Center of Attention

EUR/USD, 4-Hour Chart Analysis

Europe bounced higher today following the release of the better than expected (but worse than the latest) German ZEW Economic Report but that didn’t stop the drift lower in the common currency. The EUR/USD pair fell back below 1.2350 after the fake-out on Friday that indeed proved to be a bull trap as we speculated, and a test of the rising trendline is now possible in the coming days.

USD/JPY, 4-Hour Chart Analysis

On a positive note, the main safe-haven assets, the Japanese Yen and Gold, are also losing ground to the Greenback today, and that could point to a less significant shift in the risk appetite of investors.

That said, commodity currencies are still under pressure, and they have been a good proxy so far for judging the risk-on/risk-off divide, and with oil and copper turning lower this morning, another round of selling could be underway.

WTI Crude Oil, 4-Hour Chart Analysis

Looking at the bond markets, rates are edging higher across the yield curve and the Volatility Index (VIX) is also on the rise again, and all looks set for another active day in US markets, with plenty of trading opportunities in equities and currencies alike.

We expect Wednesday to be the most interesting day of the week, as the arguably most important release, the FOMC meeting minutes will come out in late trading. Until then, the volatile, technicals-led trading could continue.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.

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