Sometimes it feels more like we are in financial Disneyland at the moment with every day being a brave new world.
Speaking of Disneyland my weekend piece Diary Week 83: Has Jay (And The Fed) Got The Blinkers On? argues that this may be where the Fed is residing now (not for the first time).
We are clearly back to the scenario of the Fed having a direction it "wants" to follow and creating a narrative to support it. Historically that has not ended well.
The chart of the day today once again revolves around Japan.
USDJPY still remains way out of line with the US-Japan yield spread which suggests it should be closer to 140-141 at this point.
On USDJPY first good support is at 146.95 (61.8%) and then 144.13 (76.4% pullback) but a move sub 140 can certainly not be ruled out
This as US yields remain under pressure and the Japanese 10-year yield hit a new high of 1.58%. Having broken above the 76.4% retracement level at 1.47% the target now on the Japan 10-year yield is for a move to 2%
This as the Nikkei is also now coming under pressure with a double top completed suggesting a move towards 35k
Other things of note this morning
Equity markets:
Es1 remains under pressure with a weekly close last week below 5,800 suggesting we can see this move extend blow 5,500
The Sox Index still looks the most susceptible with the weekly close under 4,770 completing a double top that suggests a move below 4,100. That would take it below pivotal support at 4,287-4,290 which would suggest extend losses towards the 200 week MA at 3,758.
The path being followed is still "unnervingly similar" to that seen in Q4,2000
The NDX tested (and so far held) the 55 week MA at 19,742. It has been above it for exactly 2-years this week and a weekly close below, if seen, would target the 200-week MA presently at 15,611
European markets are also starting to "wobble" here and good supports to watch are 5,373 on VG1 and 5,372 on SX5E both of which would complete double tops.
US yields look to be more consolidating than reversing and the clear bias is for lower levels still. With Fed stubbornness on "full show" now I would anticipate increased danger of renewed curve flattening on 2's 5's and 2's 10's
Levels to watch are:
US 2-year yield: 3.84% to 3.85% and then 3.72%. these levels could become more challenging to break given the intransigence of the Fed.
US 5-year yield: 3.85% to 3.88%
US 10-year yield: 4.10-4.13%, 4.06%, 3.88%
In FX
EURUSD still looks bid but less likely a leader in USD weakness than USDJPY and USDCHF given the risk backdrop. Levels to watch here are 1.0961 and 1.1201-1.1214.
EURGBP has so far held the 76.4% pullback level at .8419. IF that gives way the next target is .8474.
EURCHF is heavy again given the risk off dynamic and the breakout area of .9508-18 is under pressure again.
EURJPY once again topped out in the 161.20-30 area and given the bias for USDJPY to lead the USD lower the bias is for this to creep lower again.
USDCHF still retains its double top target of .8730. below here support is at .8690 and .8570
USDMXN completed a bearish outside week last week suggesting lower levels re possible. A break below 20.20, if seen, should help extend to the move with the next likely target the 200-day MA at 19.64
Commodities
Both CL1 and CO1 met their extended targets of $65.27 and $68.68 respectively and bounced. For now I would be neutral here.
Gold continues to range trade and need to break above the 76.4% pullback level at $2,927 to open up for the next bullish move. price action in recent days has been a little disappointing.
Copper once again hit a brick wall around $480 and subsequent price action looks a little less constructive. (Evening star on daily chart). A move back towards $447 again could be a danger
