Dollar Outlook: Almost There

Oil: Light sweet crude for March delivery stretched to its highest level (~$55.75) in more than two months at the beginning of last week. The break higher was a head fake, and it came back quickly into the well-worn range of $50-$55 a barrel. Support was found near $51.80. The RSI looks set to bounce, but the MACDs are poised to turn down, and the Slow Stochastics did not confirm the recent high, leaving a bearish divergence in its wake. The five-day and 20-day moving average cross-over signal has been reliable over the past six months, and the former is set to fall below the latter at the start of the week. Look for participants to turn cautious as the bottom end of the range comes into view. The 100-day moving average is found near $51.  

US Rates:  As the middle of the first quarter is approached, it is notable that the S&P 500 is up over 8% this year, while the US 10-year yield is off five basis points and the 2-year yield slipped almost three. The 10-year yield fell nine basis points last week to 2.63%. Here in early 2019, the decline in yields among the major industrialized nations is unexpected, especially given recovery in equities and risk appetites in general, and end of the G3 central banks expanding their balance sheet on a net basis. The March 10-year note futures contract will begin the new week with a four-day advance and a three-week rally in tow. The momentum is strong, and the late January high of 122-19 is the next target and beyond that is the flash crash (January 3) extreme of 123-08. The implied yield of the July Fed funds futures contract is 2.385%, a little below the current effective average rate of 2.40%, suggesting a small chance of a rate is being discounted. The implied yield has eased for the past three weeks.

S&P 500: On February 5 and 6, the S&P 500 stalled ahead of the 200-day moving average. The previous support becomes resistance. The index gapped lower on February 7, and although there was some follow-through selling on February 8, it was marginal, and the close was on session highs, just above 2700. The gap is the first hurdle on the upside. It is found between 2719.3 and 2724.2. The 200-day moving average is a bit higher at 2742. Yet, the MACDs and Slow Stochastics appear to have already begun turning lower. The inability to fill the gap before the S&P falls again would point to another leg lower than could take the index toward 2600. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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