FX & Index Futures

As I posted earlier, it is obvious that the USD/JPY move higher that ramped Index futures higher this morning as well as the major averages, was a result of the Draghi article of consolidating the EU in to a monetary union and although unspoken, perhaps reworking the ECB's charter prohibiting financing of any individual nation's sovereign debt. I'm not sure of the legalities, whether a monetary union or the "Structural reforms" Draghi has been pushing for which would see sovereign nations that are EU members cede more of their sovereignty, but it couldn't come at a worse time for Draghi as nationalism is being stoked in most of the PIIGS, the very countries that need to be in a monetary union for Draghi to work any QE magic- take the 3x failed presidential elections in Greece recently and the resulting snap elections that will see the anti-austerity party Syriza right in to more power, not to mention the IMF suspending Greek funding talks until a new government is in place. The basic structure here is the ECB is financed through the IMF, channelled through Greece in the form of bailouts which are really nothing more than paying their obligations, debts and interest to other European banks, the process is complicated, but this is the flow through that finances the ECB and with recent IMF suspension of bailout talks over the failed elections, this creates an additional problem for Draghi and any dreams of QE.

In any case, the ramp was due to the EUR/USD falling on the Draghi news as currencies often do when dilution via printing comes up. This was the EUR/USD this morning on the Draghi news...

While it fell, the weakening EUR strengthened the $USD which resulted in a stronger $USD. Note the positive divergence intraday starting to form as the EUR/USD looks as if it may have found a toe hold here.

 I warned yesterday if the $USD's downtrend transitioned to lateral, it wouldn't be hard for the $USD to ramp and the USD/JPY which all of the Index future trading algos are correlated to.

Note the current negative 3C divegrence in the $USDX and high volume at the new high, suggestive of churning (bearish) with a 3C negative divergence in the area.

The strengthening Dollar caused a weaker Yen...

Yen 1 min chart dropping lower which bottomed at 11 a.m.

This caused the USD/JPY to jump, the carry pair that the algos are correlated to or correlate the Index futures to. I mentioned earlier today around the open that there was some issue as to whether the algos that usually are active around the European close would catch the fact that the FTSE would be closing at 12:30 local rather than 11:30 and the Euronext cash closing 35 minutes later.

 The USD/JPY ramped in parabolic style with several of the Index futures, however note the 3C negative divergence, now along the lines of the one seen Monday leading to the overnight losses in to yesterday.

And the correlation with the Index futures...

 Opps, the USD/JPY in candlesticks seems to have ZERO correlation with ES/SPX futures (purple) as they don't seem to care what the USD/JPY is doing and moved lower instead.

Even Russel 2000 futures that initially ramped with USD/JPY have given up the correlation...

TF ramps just after the 9:30 cash open with USD/JPY and then FAILS.

In fact it seems for the SPX futures at least, they are tracking EUR/USD a lot more closely.

EUR/USD vs ES (purple).

So follow this, EUR/USD drops sending $USD higher and Yen lower, USD/JPY moves higher taking Index futures with it initially and the algos seem to be re-calibrated to the most influential pair right now that started all of this, EUR/USD.

However all 3 currencies are important, $USD. Yen and Euro.

 This is ES on a 5 min chart (purple) with USD/JPY, if you consider the bigger picture posted yesterday and this morning, the SPX futures have some catching down to do to the USD/JPY correlation, short term you can't see it, but move out to a 60 min chart and there's an air bubble for support of SPX futures...

Here it is on a 60 min chart, note when ES prices (purple) we lower at the previous high to the left, USD/JPY was right in the area, but now USD/JPY is significantly dislocated and there's an air bubble for support, meaning ES and other Index futures could see a pop of that bubble and a move lower toward the most traditional correlation of USD/JPY.

As for individual currency futures, you saw the 1 min $USD already seeing a negative divegrence, the Euro in an area where it may have gained a toe hold and put together a positive divegrence as Draghi's jawboning has a very limited half life, typically less than a day now. A falling dollar, rising Yen or rising Euro would all be market negatives.

 The 5 min $USDX which we suspected would turn lateral from yesterday's initial move lower did turn lateral at the green arrows, but the 5 min 3C chart of the $USD shows a large relative negative divergence suggesting the $USD doesn't hold much longer and we didn't expect this to be a very long lasting move yesterday as there was no support beyond 1 min charts, but there were divergences suggesting USD/JPY move lower in the stronger/longer charts, such as this one.

The Yen put in a positive divergence on a 7 min chart and in my view has been doing nothing but consolidating in this area , also as suspected.

Remember after the 7 min charts which were the neutral turning point between short term and long term, the $USD looks a lot worse, the Yen a lot better.

As for the Euro...out at the 60 min chart it looks like its trying to put together a larger base, likely to move at a later date, but still working toward that.

60 min Euro positive divegrence.


Index futures...

 ES 1 min looks to be trying to hold a consolidation in the area, but struggling.

The same for TF after distribution at the a.m. highs.

And NQ is in line with the downside move, 3C trend/price confirmation.


As for the longer charts, the stronger divegrences and highest probabilities...

 TF 7 min leading negative, I don't think it will be long before the final part of our 12/12 forecast completes, everything up until now has been a means to an end, in other words as I often warn, price is deceptive.

ES 15 min in line with the downtrend since distribution at the highs and a move lower.

ES showing the entire cycle since our forecast on 12/12 with accumulation 12/15 and 12/16 and the move higher we forecast in to distribution as was forecast, leading to the next pivot DOWN.

 At the strongest charts, here NQ 60 min also shows the cycle we forecast with the white area around date being 12/12.

And the TF 4 hour chart with exceptionally strong distribution.

We also have daily, weekly and monthly charts negative, these are by far the highest probabilities for the next move and a strong one at that.