Markets At Critical Point

This week was one of the more interesting in the last few months. While prices did not actually move in dramatic fashion, there are various underlying activity across multiple instruments that clearly show the market has hit an inflection point.

The most glaring of examples is in the equity markets, but as we have discussed in the past; Risk is one of the biggest factors to use analyzing the future direction in all markets. I would like to note that our PrymFX Risk Oscillators are both sitting exactly in neutral readings. This often happens right before a new direction in risk begins.

Up to this point there was the belief a V-Shaped recovery in the global economy would occur. With Covid-19 beginning to heat up again, Brexit on the horizon, and a looming U.S. Election period, there is plenty of uncertainties to undermine the V-Shape recovery theory.

Let's look at some charts.

DXY

As noted yesterday the Dollar Index (DXY) is at the top of downward wedge. During the most recent session it attempted to go down but ultimately finished up right above our short-term moving average but stopped short of breaking up over the wedge resistance. There was a great deal of activity in other markets, so I can only surmise this did not break up because it was the last trading day of the week. In the next few sessions we should see a clear indication of where this is headed which will give us information on all U.S. Dollar denominated pairs.

AUD/JPY

This AUD cross is a very good forecaster for risk in the market. As noted above, it has broken a rising trendline dating back to June. At the same time it has broken below our short-term moving average. It looks like it is headed down to our long-term moving average which is not a good short-term sign for risk assets.

EUR/USD

The Euro looked to be in a bull flag pattern in early July. However, throughout August and September this looks more like a distribution channel as bull flag patterns typically resolve to the upside within 14 sessions. As the DXY was making new lows in early September, the Euro has not been hitting new highs. Look for a break downward of the support line to the 1.16 area.

S&P500

This very broad index of equities has been bouncing around in what looks like a bear flag pattern. Hence, we expect to see a resumption to the downside to the 3,200 area. This is yet another indication the Risks are increasing in all markets.

Thank you for reading,

PrymFX Team