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Dollar/S&P Divergence

Dollar Reaction To Equity Resistance

The currency market was quiet during the Asian session as the HSI and Nikkei closed in green by an average 1.5%, while the Chinese markets finished in the red with a 0.33% loss. At the same time the European markets traded just under the break-even line.

This mixed pattern was also seen on the major pairs, where the U.S. currency was virtually unchanged against the Euro and Swiss franc, weaker against the Australian dollar and sterling, but stronger against the Japanese yen and Canadian dollar.

Once the European market opened the U.S. dollar made some small gains against the majors, when the it hit new weekly highs against the Euro and Swiss franc.

It is quite interesting to see the euro at the new 1.4556 low, since S&P futures traded significantly higher in the past few sessions, from 1035 support to 1060 resistance. (Chart detail). In diverging this way the S&P/Eur link has taken a reversal turn that has not been seen all summer.

As this follows through the trade team at TheLFB are expecting to see dollar index prices trading higher over the coming days, if the current near-term lows at 75.83 hold as support. TheLFB Charting Link

Dollar Index Charts

“This indicates that at the moment traders do not want to sell the U.S. dollar after the support areas that were hit and held in the past two weeks (chart detail).” said Grega Horvat, Snr Currency Strategist at TheLFB. “With equities trading higher we see an inter-market divergence, with broken a correlation that may be a reason, and a very strong signal, for an even higher dollar just as soon as the global stock market hits the next main resistance area,” Horvat added.

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