EUR/USD Update

We'll be looking at more than just the intraday or the sub-intermediate term, lets call that the bounce since the second week of March, but we'll be looking at the broader trend especially as it relates to the $USD.

This has repercussions on intraday trade, but more so on the sub-intermediate or swing/bounce. It has much larger repercussions on the broad market and likely central bank policy all over the world and we'll work in to the repercussions it has on the carry trade, which is a huge part of the market, were looking at about $9 trillion in $USD's in the carry trade, if that's unwound more so than it already has been, this has an EXTREMELY material and negative effect on the market and who knows what kind of spider-web or butterfly effect on the global economy and the other areas you just can't foresee, but it's not a good thing for bulls.

Earlier in the day I posted this, EUR/USD More Key than we Realize /GLD then shortly after I posted the tug of war between the EUR/USD and a few leading indicators being used as if the SPY Arbitrage has been activated intraday (short term upside manipulation or to hold the market in place/support)...Leading Indicators Point to some SPY Arbitrage and a Tug of War

If you want to see why the EUR/USD is so key here, look at the EUR/USD vs. ES charts posted here, Leading Indicators Point to some SPY Arbitrage and a Tug of War and then look at them just a few hours later posted below.

This is the tug of war with EUR/USD pulling the market down and a few Leading indicators that belong to the SPY Arbitrage being used intraday to pull the market up resulting in more or less a flat range bound market.

However, the EUr/USD is surely going to win out as any of the Leading Indicators are negative beyond an intraday chart and by now several have likely already gone negative intraday vs the last update. Again, compare the charts below with the same timeframes from just a few hours ago and you'll see the influence of the EUR/USD.

This is the intraday, remember EUR/USD is the candlesticks and ES/SPX futures are the purple line. Earlier today Leading Indicators like VXX and HYG were being used to support the market and it ran a bit above the EUR/USD correlation. Since then, note the SPX futures (ES) have fallen back down to the correlation as they were destined to do not only because of the longer term charts of Leading indicators or the 3C charts of the averages, but the charts of EUR/USD itself.

 You might recall the 5 min chart in which the two looked like they were moving to short term reversion to the mean on this chart, you can see ES has dropped below that and that's because it owes downside based on where EUR/USD is right now even if it wasn't destined to pullback even more.

The 60 min chart was showing that, but since the last capture of this same chart, note how much more ES has fallen toward reversion to EUR/USD's reality and that's assuming EUR/USD just sat there it didn't move lower, but that's not what the chart probabilities have ben telling us.

 This is the 5 min chart of EUR futures, but we already knew this based on the 10 min charts, EUR/USD's probabilities are to move lower which means the $USD bounces relative to the EUR, thus our position in GLD yesterday.

 This is the $USDX 5 min chart from in line on the downtrend to the reversal setting up with a positive divegrence and confirming the EUR chart above.

EUR 10 min leading negative is the stronger chart and higher probabilities, again confirming everything above in the way of both ideas and charts.

 A few days ago the $USD (10 min) chart looked so bad after the F_O_M_C flash crash, it was hard to imagine it might right itself, but that's what would have to happen for our bounce to end and we forecast the bounce would end and it would only be a bounce before it even began so no matter how unlikely it looked a few days ago, here are those probabilities from more than a week ago present on the chart as the 10 min $USD leads positive.


 Remember I said the correlation was insane, a thing of beauty to look at. Well this is the EUR/USD and that's the 13th to the left at the base, it's the exact same time most of the averages finished their bases. The correlation is amazingly strong and you can pretty much look at one asset and know what the others are most likely going to do.

The point is the bounce cycle has ended as this chart has turned negative as well and it's a stronger chart at 30 mins suggesting EUR/USD maybe not only pullback to the area of the 13th, but perhaps make a new lows for the leg since the pair broke important multi-year support.

 And the $USD on a 30 min chart, the exact opposite so once again, confirmation all the ay around,  confirmation of probabilities since before the bounce even began going all the way back to Tuesday March 11th!

This is where we leave the Euro for now and look at the $USD 60 min chart. The USD has made a small pullback after  an amazing run up since mid July. You'll have to remember this chart or come back to it when looking at the longer ones below, but it shows the pullback area or negative divergence which corresponds with the EUR bounce and the EUR/USD bounce and the positive divegrence now corresponds with that bounce in the FX pair and the equity markets ending and heading lower.

 This 4 hour $USD chart shows the negative divegrence behind the most recent pullback that corresponds with the market bounce.

Some of you may be thinking, "Well if the $?USD is bounce to head lower, doesn't that mean EUR/USD heads higher and the market with it?" The answer is no, we don't know how the EUR will respond and how Draghi will respond to a lower $USD except that he'll be angry after finally introducing QE to kill EUR strength,. The Bank of Japan won't like it either, but there may be much bigger issues on the table that I'm trying to work toward and the last chart will make those plain.

Also as you all remember, it wasn't very long ago that USD/JPY was the only pair that mattered and we didn't even look at EUR/USD on any regular basis, it has had a correlation here, but don't assume that holds for any period of time, not to even mention the fluid Greek Exit / Default scenario.

This is the Daily $USD chart, it shows how strong the $USD has been since last July., it also shows that strength fading in 3C and since that strength faded we saw our first significant $USD pullback after something lik 12 straight weeks of gains and multi-year records for $USD strength.

The pullback you see to the far right is what we just went through, we should see a bounce in the $USD from here, remember few assets just make a "V" shaped u-turn.

However once we get past the usefulness of these charts for the market timing and EUR/USD purposes, the bigger and more important discussion we are working in to is something I wrote about several years ago. "When the market is ready to make a primary trend down, expect the Yen to rally and $USD to fall".

Now we are getting in to $9 trillion of carry trade liquidity that have ramped the markets since 2009, that looks like it's about to all unwind in a hellish storm kind of way, you might even say a perfect storm with rate hikes.

Since this is a more intense and larger issue discussion, I'll just leave you with the chart that counts the most for the market and its primary trend as in bull or bear market, the weekly Yen chart...

On a weekly basis Kuroda's Third Arrow and the BOJ's QE-Zilla have killed the Yen making it the perfect carry trade pair currency, but it was a favorite long before that.

Despite all of the little things I could mention like the BOJ speaking out against more QE purchases recently and the like, note the weekly positive divegrence and not only that, but the trend change from down to lateral as the 3C divegrence would have forecasted. It looks like $9 trillion in carry trade liquidity is going to see a large chunk of that unwind and that means selling the assets that were financed via the carry trade.