SPDR S&P 500 ETF Trust (SPY) Forecast: Dollar soars, so earnings head for floor

Equities moved higher on Wednesday in apparent aloofness at what was happening in the rest of the market. Oil prices fell sharply, and the dollar gained again. Today we should get a whopper of a rate rise from the European Central Bank and some hawkish testimony from Fed chair Powell. 

SPY news

Wednesday's move was confusing, to say the least. Oil collapsed as oil traders grew concerned about global growth collapsing. This is not normally a good thing for equities, but they rallied thinking lower oil prices mean less inflation. Let's wait and see on that.

Next up came the dollar ballooning to record levels versus the yen and every other currency. Again this is not good for companies with a lot of overseas revenues. Still the SPY rallied. Finally, we got Fed whisperer Nick Timiraos from The Wall Street Journal penning in for 75 bps at the next Fed meeting. 

Nick appears to have the ear of the Fed, so this is noteworthy. Yet still the equity market rallied. On Wednesday, Jefferies was out with a note saying to avoid companies with exposure to a strong dollar. This will be a major headwind going forward as the dollar keeps going up. Back to rate hikes, and the futures and money markets now are looking more odds-on for a 75 bps hike. The ECB is due to unveil 75bps imminently despite raging energy prices.  

SPY forecast

We are rangebound between $389 and $401. Any breakout is likely to see some FOMO momentum to accelerate the move as liquidity is still poor. However, risks remain to the downside from a macroeconomic perspective. $401 is the bearish pivot. Below more losses are likely with a target of fresh lows. $389 is the lower trend line support.

SPY daily chart