This is an election year. In election year, markets move higher, against all odds. So with all the negativity and economic data which keeps worsening by the month (unemployment report, ISM, factory orders etc), markets continue to baffle many via its ability to ignore bad data. Now in the bond markets a move like this basically means equity markets are preparing for hyper inflation (ie if you were evaluating the markets from bond managers mind set). On the hand bond markets too are rising in parallel (bunds touching all time highs while SCHATZ to at significant highs if not all time highs) which basically means bond markets are preparing for a massive deflation cycle spanning multi years. Take your pick gentlemen as both the trades are under way though in different asset classes. When in doubt, back the bond managers as they manager many times more money than the equity funds.
So with that thought lets move to todays chart and analysis. Now that the initial trade to 1360 has worked of the upper BB25,2 daily at 1375, things get tricky from here on. Minor ret to 1365 should be an excellent opportunity to short to 1350 but once again will be wraught with danger as we will need to monitor the hourly charts carefully to see if the prev high last week can be challenged. Both stochastic and Vortex Oscillators are positively biased. The Net Buy line at 1375 still holds strong. Any close above that level is a big achievement for the bulls and hence a strong push to yearly highs will be underway. ES weekly 25,2 mid band comes in at 1350 pretty much at the same zone where the daily mid lines come in and hence I think we will see retest of 1350 and even a strong challenge.
The dollar daily charts suggest the support at 82.78 holding and a massive candle on friday to end the week minorly negative. But the chart does not exude much confidence with a close above 84 needed for further push. In failure to do so, Dollar index is once again in danger of making a triple top at 84 which could be powerful push down to 81.3 levels. Wtahc for candles to narrow or an inside day for a reversal at 84. The gaps at 98 beging their inevitable close but it has taken over 15 days for that gap to challenged and now being closed. This was the EU summit close which was riding Monti ability to have squeezed more out of Germany and now weeks later, it all looks an eye wash. Of course many of us will say "We knew already" :)There is some more downside here to 97 before we see stabilisation in Italian bond markets and that could well be the turning point for EURUSD as well. You have now been warned and you know the places to look for an early warning system to play a reversal in EU.