I started with currencies because while the $AUD is in a positive leading position, the real correlation between currencies and risk assets is realized in the value or changes in the $USD and to a lesser extent the Euro.
I found it interesting given the not so good news in the EU yesterday and today especially that the Euro is hitting highs for the week (currencies tend to trend better than equities) and while the $USD hasn't seen the same degree of downside, it is down from yesterday's close and down quite a bit from yesterday's highs. We've had positive divergences in the Euro/negative divergences in the $USD which all agree with what we are seeing in the averages (3C charts) as well as the leading $AUD.
The bottom line, the currency movement today is what 3C has been telling us to expect and it is bullish for equities as I accidentally (sort of) ran across some risk assets that are already pricing in the lower $USD.
There are other interesting things to note too, even though we are VERY early in the day (the time equities are usually manipulated on overnight/ptr-market stop and limit orders.
Lets start where I started, the currencies.
Here's where the EUR/USD opened trade for this week Sunday and now we are breaking above that level for the first time this week, this explains in large part the Futures strength even though many would say it's all CSCO.
What is surprising (really not, lets say "unusual") is that the Euro is higher and has been trending that way (thus we know it's not because of an economic report this morning) during what has been a bad news period for the EU. However if you are a fund manager and you are positioned long equities for a move higher, you've also been positioning long the EUR/USD as they will move together-so the same positive divergences in equity averages should be seen in the currencies and they have been. A divergence is not a signal the market is going to reverse right now (except sometimes in the fastest charts), it's a signal telling you that what you see in price is not necessarily what is going on in underlying trade by smart money or maybe "Big money".
Here's the EUR/USD with 3C applied to the pair, we have a rather large positive divergence before the European open overnight and the EURO moves up from there (1 min chart). As we approach the US open, we have several smaller negative divergences, these in my opinion are just intraday noise that we'll see and are seeing in the market now, the positive divergence is the bigger theme.
On a longer, more important chart of the currency pair, there's a LARGE positive divergence at the exact lows of the pair for the week.
The Euro ETF had been trending down (notice how well currencies trend) with 3C confirmation until recently and especially at what I consider to be a high probability head fake area, the Euro/FXE is now moving off this large 15 min positive divergence-see the gap up today.
Note the similarities between the positive divergence in the Euro and the positive in the equity DIA
DIA 15 min leading positive
As for the $USD (UUP intraday) there's been a nasty leading negative divergence which confirms the Euro/FXE chart as well as the equity average divergences as it is the mirror opposite.
And the $USD on a faster 5 min chart in the same area as the suspected head fake move down in the market, while the averages are positive there as well as the Euro, the $USD is the exact opposite, again, a move lower in the $USD helps the market and most risk assets.
I switched templates to the Leading Indicators just to see what the Euro looked like vs the SPX, as the Euro is a good confirmation indicator, meaning the market should move toward the Euro area (SPX is green).
This 1 min chart of the open until present shows a large move up in the Euro, again the market typically follows the Euro so it acts as a good confirmation indicator, this would suggest the market see upside pressure shortly.
On a longer basis as we round over as I sowed 3 times yesterday using a moving average to cut out the noise/volatility, the Euro just jumped, I said yesterday it is likely that the right side of this "U" sees a more vertical move than the left side. The Euro's move seems to support that idea.
While I was on the Leading Indicators template, I took a look at several of the Leading Indicators that I told you yesterday and the last several days were bothering me as they weren't where several of the other leading indicators were (in a bullish divergence) and I saw some interesting early changes.
This is a Commodity Index vs the SPX (green) with an impressive move up this morning, a bigger move than would be expected based on the price only correlation of the $USD drop of about -.05%, it's as if commodities are acting like they are discounting a bigger drop in the $USD which is what we've been seeing signs of.
A bigger picture view of the same in this U-Shaped area. This also seems to support the idea of a more vertical right side than left.
Yields are like a magnet for equities, I was disappointed that they were in line with the SPX rather than leading it. Yesterday I showed you the negative divergences in TLT though, even though price hadn't moved down yet, today we see Yields now leading which is something they haven't done for at least 3-4 days.
I also didn't like the fact High Yield Corp. Credit was only in line, this is HYG at the close yesterday, it ran up quite a bit.
And this morning it is now leading.
HY Junk Credit was the other, it too is now leading.
A very interesting set of dynamics just came in to play, I'm not concerned about the early morning trade, but I will take a look at indications.
Overall, this is a set of very bullish changes.
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