S&P 500, Bank Stocks, Dollar, USDCAD and Gold Talking Points:

• Another day and another record for the S&P 500 – the fourth in a row – but the 5-day ATR drags the worst activity levels since December 2019
• The dollar posted a modest rally in the past session, but the rally came ahead of the strong report on consumer confidence and hot real estate inflation.
• EURUSD was my target for Tuesday given Eurozone data, but despite CPI EZ ahead; USDCAD will be at the top of my watchlist on Wednesday

S&P 500: it’s a new record … I guess

I didn’t think the markets could get much calmer than the day before, but the S&P 500 continues to handle what seems impossible. As we move into Thursday’s trading session, the US benchmark comes out of activity levels as extreme (for inactivity) as anything we’ve seen since before the pandemic hit in early 2020. D ‘on the one hand, it is natural to see the markets normalize after the extraordinary uproar of a year ago; but where we are now is a pendulum swing in the opposite direction. It’s an extreme at a different point on the spectrum. From the SPX, the previous session’s range was the smallest daily duration (as a percentage of the spot) since April 26e and there’s just one more day set aside before having to go back to December 2019. On another measure, the Average True Range, or ATR, as a measure of actual volatility, has fallen to its lowest level in the same 19 months. extend with the 5 day tenor. It seems like a loss of appropriate volatility as we move towards NFPs and July seasonal expectations, but these readings are even more extreme than the circumstances would warrant. This suggests that at least a modest break is in reach before the end of the week – and I would say probably before Friday’s jobs report.

S&P 500 chart with 20 and 100-DMA with 1 day historical range and 5 day ATR (daily)

Graphic created on TradingView platform

While I use shortcuts to gauge market conditions as easily as anyone, I like to check deeper metrics to get a more complete perspective on the most influential fundamental theme for the financial system: global trends. risks. Across the spectrum, there is a weak correlation between unrelated speculative asset classes, although most generally struggle for a clear move. This suggests that the markets don’t operate with a sense of greed or fear. That said, there are still more sensitive metrics to track appetite, such as the Nasdaq 100 / Dow ratio. The comparison, a measure of momentum versus value, hit new four-month highs in the last session. Alternatively, there was a noticeable contrast in performance between two alternative risk measures. On the bullish side, high yield fixed income ETFs (HYG and JNK) have hit new multi-year highs in earnest; but the forex market dividend play in yen-based carry trade pairs fell on Tuesday. Neither is likely to generate serious motivation in their immediate endeavors, but it’s worth watching what holds the longest.

SPDR Select Financial Sector chart overlaid on Nasdaq 100 – Dow Ratio (daily)

Graphic created on TradingView platform

Fundamental charges for EURUSD

During the last session, my target for most event loaded currency exchanges – and therefore the one most capable of generating fundamentally loaded volatility – was EURUSD. In the euro dossier, we were offered a set of data including eurozone economic confidence, consumer inflation expectations and the German CPI. Overall, the data beat expectations and presented a bullish argument for the currency. Nonetheless, the euro gained little traction in the race. In fact, the EURUSD erased its too narrow range with a downside breakout. One could try to attribute this resolution to the United States Conference Board’s consumer confidence survey which reached its highest level in 16 months, but the gains were recorded before the data was printed. To be fair, the data also did not inspire domestic capital market assets (US equities) despite the implications for growth. Perhaps the component measure for inflation reaching 6.7 is a lag given the focus on Fed rate speculation.

S&P 500 chart overlaid on Conference Board U.S. Consumer Confidence (monthly)

Chart created by John Kicklighter with data from the Conference Board

Looking at the dollar in relief, the currency has benefited from a considerable rally against most of its counterparts in the last session, with the exception of the Japanese yen. Since event risk played a limited role in generating short-term volatility, this may have been an underlying reflection of risk trends where the Japanese currency enjoys more moderate levels of risk reduction. . Going forward, the dollar will have more data to chew on ADP’s private payrolls for June. These numbers generate much less impact than the official government payroll report; but given that there is some time between the release and the weekend’s cash drain, perhaps it could functionally gain popularity. It all depends on the importance of the monthly change. In the meantime, keep an eye on the euro (EURUSD, EURGBP, EURJPY all have interesting technical pictures) with the release of the Eurozone Consumer Price Index (CPI). If the ECB is seen as being forced to reign in accommodation, the message could easily be global.

DXY chart overlaid with 20 and 100 day moving averages (daily)

Graphic created on TradingView platform

USDCAD has event potential and gold catches the attention of traders

Looking through Wednesday’s main economic event risk, the confluence of modest US data will encounter a potentially powerful mix of the Canadian record. Normally, the monthly GDP reading (April) and upstream inflation figures would receive little market attention. However, circumstances have changed of late, with competitive rate projections being a more effective fundamental driver. While the Fed may have brought forward its timing and intensity of rate hikes at its meeting two weeks ago, the Bank of Canada actually cut back on asset purchases a month ago. In addition, the BOC is expected to further reduce capital injections in the next quarter. Data will contribute to this possibility. If the market views the data as a contribution to comparative value, the impact could be greater. Even though we get a big impact, I wasn’t reading too much in a bullish effort to break above 1.2500 until the liquidity fills up.

{{FEELING | USDCAD}}

USDCAD chart with 20 and 100 day moving averages, COT Net Spec positioning (daily)

Graphic created on TradingView platform

Gold is another market that deserves a closer look. We have covered the commodity extensively on DailyFX over the past few weeks given the bearish advance, but I haven’t included it very often in my analysis. With the greenback advancing in the last session, the still leading anti-fiat fell below the midpoint of the post-pandemic range (March to August 2020) at 1,765. Interest exerts a considerable influence in this market because its very appeal as an alternative to interest-bearing currencies is compromised by an expectation of rising rates. Below is gold overlaid with the outlook for US interest rates (inverted). If that was the only influencing factor, I would wait until the liquidity was resolved; but speculative interest here adds another dimension of attraction. Speculative futures positioning in the market has fallen to the least bullish position (net long 166,214 contracts) since June 2019. In contrast, individual CFD traders with a shorter time focus correspond to their net long position. heaviest since March – when the market marked its low.

Spot gold chart overlaid with the implied federal funds rate reversed through the end of 2022 (daily)

Graphic created on TradingView platform

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