Forex Technical Update
S&P500 1-hr Chart 1:41PM PM EDT 7/5/2012
Since last Friday, the S&P 500 has been rallying on the back of 1) EU summit 2) positive US factory orders 3) most importantly, central bank actions. Today (7/5) we have People’s Bank of China lowering rates, the BoE expanding quantitative easing, and the ECB lower the benchmark rate to a historical low of 0.75% and deposit rate to 0%.
These recent developments extended a rally from May-June’s low at 1262 up to today’s US session high of 1375. During this rally, the market has developed a rising channel/wedge pattern when you connect the lows and highs. The 4H chart shows the market now trading at the pattern resistance, with the RSI reading falling below the 70 level after a slight bearish divergence.
The market is likely to be tentative heading into tomorrow’s Non-Farm Payroll. The interesting thing is that a very good AND very poor reading can bring about risk-on trading and push the S&P 500 higher.
In this bullish scenario, we can look for the market to target the 2012 highs in the 1412-1420 area. Finding support at the pivot near 1355 can also strengthen this scenario, but the bearish scenario is held off until a break below 1300. If we do get an initial risk-off reaction during the NFP, a level to look fro support under 1355 could be the 1338 pivot and near the wedge pattern support.
Positive risk sentiment seen in S&P 500 might also keep EUR/USD afloat, while giving more strength to commodity currencies, especially if poor NFP data does indeed give the market more reason to price in QE by the Fed.
S&P500 Daily Chart 1:47PM PM EDT 7/5/2012
Fan Yang CMT is the Chief Technical Strategist, trader, educator and a of the main contributors to FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
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