Futures, CONTEXT and Currencies

I believe it was just last night and pretty much since the start of the week that I have not only been focussed on what the mid-term Index Futures are doing like ES and NQ (S&P and NASDAQ E-minis), but more recently there's been an added emphasis not only on what the EUR/USD does which could be a huge change as of tomorrow if the ECB actually does something instead of taking a pass, the French are screaming about the Euro's ascent and I can't imagine German Industrial production and exports are very happy about it either, especially with part of of 2 (GDP) in place for a formal declaration of a recession. Germany counts on exports, if you really dig down to the hardcore truth, the Euro-zone wouldn't exist if it weren't for Germany needing to create a free trade zone in which they controls who gets in based on their credit report (economy and ability to pay for German exports). This is also one of the main reasons why Germany is the clear task master when it comes to Europe and the question tomorrow will be who Draghi really answers to, the Bundesbank and Germany or Goldman Sachs, although according to Goldman they too off their Euro long days ago which means they have been selling in to strength since they announced it.

In any case, the thing I'm focussing more and more on is the carry trade, the ECB's decision tomorrow could have huge ramifications for the carry and for every risk asset class, that may be why we are seeing some not so carry friendly movement in the pairs today, nervousness in front of the ECB tomorrow? I may have to leave that QQQ weekly Put from yesterday open a bit longer.

Any way, we'll look at CONTEXT first as a quick and dirt way, but I'll update Leading Indicators, it really matters right now.

 CONTEXT for S&P Futures shows the model significantly down vs ES, it hit a low earlier of a -12 spread, that's pretty low (ES is red/CONTEXT model is green).

 CONTEXT's SPY arbitrage is also seeing similar underlying weakness as there's been a significant divergence between the SPY and the model since about noon time (I can't believe how fast the days are moving this week),

 This is the ES 1 min chart with a leading negative divergence, it starts at what time? 12 p.m. EDT

 Yesterday the ES 5 min chart, which was working perfectly for our 1-day weekly option index trades, was nearly perfectly in line, this was one of my concerns, I at least see divergences now, but perhaps more importantly...

 The ES 15 min chart, which is much more important, was not effected by the shorter term movement that did effect the 5 min and the clear positive and negative divergences are still very much there, so far today we have a pretty negative one, another reason I may have to leave that QQQ Put in place for another day although I hate doing that with fundamental wild cards like the ECB vote, but it seems Goldman doesn't have a lot of faith in the status quo either.

 NASDAQ 1 min futures got nasty after being largely in line all night and certainly since the European open.

 NASDAQ 5 min chart still seems to be working fine for the day to day option trades we've been hitting to take advantage of the increased ATR and volatility.

The 15 min NASDAQ showed quite a bit of deterioration.

Other indications...

 The EUR/USD since the start of trade this week (green arrow) with the red trendline as an initial marker, yesterday we had some Euro strength,today it's slipping as the $USD is actually up today.

 The EUR/JPY longer term trend, this is carry friendly, it also looks a bit wedgey too.

 A closer view of the same pair intraday showing the Euro losing ground, but guess what else?

 The Yen is really close to breaking out to the upside, if that happens with the Euro still losing ground (imagine if the ECB cuts) then the carry trade could be the main driver of downside momentum in the market. I suspect the bit of Yen strength or possible strength we are seeing right now is some carry trades being closed as they'd have to buy the yen back.

 The USD/JPY longer term, also a bit wedgy.

 And the pair over the last 2 days, notice anything different? Of course this isn't a big enough move to call it a change in character, but it could be the start of one.

 This is the $USD intraday, it's up on its own. If you look above it would seem the USD was slipping, but that has to do with the Yen not falling like it was.

Again, the Yen, that could easily breakout to the upside and with the leverage on the carry, cause a very fast shift in momentum and a lot of risk assets would have to be sold quickly to close this highly leveraged trade out as every pip lost is worth 1 or 2 hundred!