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We know what they are, and we see they're driving stocks, risk currencies and other risk assets higher. The only question is, how sustainable are they?

While this week's calendar has plenty of potential drivers for specific currencies, it has more limited punch for stocks and overall risk appetite.

Here's what's likely to drive markets this week.

FUNDAMENTAL MARKET DRIVERS

First, here's a rundown of the fundamentals driving the big trends that permeate most risk asset markets.

Prior Week's Drivers Dominant Until Decade Highs Hit

Until the ongoing rally in risk assets hits decade highs on such major risk barometers as the S&P 500, we expect the reigning set of market drivers to remain dominant.

These are, in short:

A lack of immediate solvency crises

  1. An ongoing relief rally after fiscal cliff deferred, which in turn helped feed…
  2. Technical momentum, which has brought the leading global stock indexes in the US and elsewhere to near decade highs.
  3. That in turn has whet traders' appetite to test those decade highs.
  4. Short Term Trader Focus: Continued complacency about the biggest market threat, the EU, as well as the next austerity battle in the US. Looming unresolved deleveraging issues just aren't a factor.
  5. All of the above allow the abundant stimulus printed cash to continue chasing yield to continue into equities and other risk assets

See our review of the prior week's lessons for the coming week here for further details. Note that we are essentially at that resistance. For example, the S&P 500 is only a bit over 4% off its 1553 all time highs. However, virtually every really meaningful fundamental: growth in GDP, jobs, wages, spending, earnings, (and forward guidance) remain far less robust than when these levels were last visited in 2000 and 2007. In some cases, even the nominal figures remain below those from the prior highs.

On the face of it, new highs not supported by equally stellar fundamentals seems unsustainable in even the near term. However, as we pointed out in part 4 of our summary of all 2013 forecasts, if you believe stimulus will continue to prop up prices of assets that produce less wealth, and keep the insolvent at least liquid, then you can't bet against this rally until the charts tell you it has decisively reversed.

Calendar Events

Even the top tier events this coming week are not especially market moving. There's a lot of important Australian and New Zealand economic data Monday and Tuesday (jobs, housing, trade balance, rate statement from the RBA) but that's generally influential only for AUD and NZD currency pairs.

There are also some UK reports on, construction, services, and manufacturing PMIs, as well as the BOE's monthly rate statement. However, like the Aussie, and New Zealand data, their influence will most likely be limited to the GBP currency pairs. The same thing can be said for Canadian PMI, jobs, and trade balance reports.

Consult any good economic calendar for specifics

As always, the events with the most market moving potential are the top tier events from the biggest economies.

We covered most of those in our EURUSD weekly forecast here.

The only other data of note is China trade and inflation data due out Friday. Higher than expected trade balance data will be bullish for global markets as it will confirm the impression that China's slowdown is bottoming. Lower than expected inflation data will be bullish because it gives China added flexibility to add more stimulus if needed.

TECHNICAL MARKET MOVERS: MOMENTUM VS TECHNICAL RESISTANCE

Beyond the market drivers noted above, unless we get major surprise concerning news related to one of them, the most likely source of market moving energy will come from how the trading community sees the technical picture.

In other words, in the absence of new fundamentals that change our perceptions of the value of risk assets, which is technical factor is stronger - resistance that's over 12 years old, or momentum fueled by the above potent yet unsustainable mix of government intervention and belief that it will continue to both stave off solvency crises and drive risk asset prices higher?

If you believe the fundamental drivers at the top are sustainable, then expect risk assets to keep marching higher.

CONCLUSIONS

Given the strength of momentum we've seen on the weekly S&P 500 and EURUSD charts, we don't bet against that trend until it shows us signs of not just weakening but reversing. We discussed the EURUSD chart in our recent article on the EURUSD weekly outlook here. Our comments about momentum of the weekly EURUSD chart apply equally well to the weekly S&P 500 index chart shown below, which is a better overall risk appetite barometer.

(click to enlarge)

WEEKLY S&P 500 CHART OCTOBER 20110 - PRESENT

Source: MetaQuotes Software Corp, thesensibleguidetoforex.com

03 feb 03 0637

Beware The Great Rotation Story: Smart Money Rotating Out, Suckers In?

As noted in our review of last week's lessons for the coming week (see here for details), we remain skeptical about the latest creative explanation for why stocks and other risk assets are continuing to rally in the absence supporting fundamentals.

The basic flaw with this idea that investors are rotating out of bonds and into stocks is that overall markets can't rotate in and out of anything - there is a buyer and seller. In other words, if someone is selling bonds and buying stocks, someone else is buying bonds and selling stocks.

Given that markets remain at highs that are not justified by fundamentals, we suspect this is a case of smart money selling to retail investors.

The Most Sustainable Trend: Currency Debasement - How To Profit And Protect Yourself

As markets continue to move with news that feeds hopes for more stimulus fueled with printed money, it's clear that the USD, JPY, EUR, (and soon GBP) are all being actively debased by their central banks, some by actual money printing, some via threats of its inevitably coming.

See here and here for the most up to date guide to diversifying into the stronger currencies, or at least into assets linked to them, using simpler, safer ways than typically found in guides to forex or foreign investing. Perfect for the busy self-guided investor or trader.

Disclosure/disclaimer: No positions. The above is for informational purposes only. All trade decisions are solely the responsibility of the reader.

Source: Coming Week Market Movers: How Long Can They Last?