DOW, S&P BREAKOUTS AS USD-WEAKNESS SHOWS UP
It's been a fairly climactic week across global markets, and for US equity traders the release of that building tension has worked out in a positive way. While the S&P 500 and the Dow had spent much of the prior three months coiling-up into congestion patterns, giving the appearance of a possible down-side break; this week saw bulls take over, eliciting topside breakouts and prices are now running towards fresh monthly highs.
We looked into this setup in the Dow on Wednesday morning, looking to the confluent area around 24,555 for topside breakouts into Fibonacci resistance around 24862. Given the timing of this move around US inflation figures, this presents a backdrop of continuation potential given that a point of pressure for equity markets has been removed, or at least softened. After March inflation numbers printed with strong surprises, the fear was beginning to creep-in that runaway inflation could compel the Fed into an even more-hawkish stance. The release of yesterday's numbers showed that this isn't a major concern at the moment as both headline and Core CPI printed at-or-inside-of expectations.
DOW DAILY CHART: TOPSIDE BREAK OF DESCENDING WEDGE BRINGS BULLISH CONTINUATION POTENTIAL
Chart prepared by James Stanley
US DOLLAR PRINTS BEARISH EVENING STAR AT RESISTANCE
Perhaps not coincidentally, that bullish breakout in US equities came-along at the same time as a bearish reversal in the US Dollar. We were following a key area of resistance on the Greenback this week at the 93.35 level in DXY. After a test on Tuesday, Wednesday produced a Doji and Thursday with bearish follow-thru; the net of which was a bearish evening star formation. These three candle formations can be attractive for trading reversals as it shows a market probing an area of resistance before a tonality change takes place; and we looked at this in-depth in yesterday's webinar entitled, the same time as a bearish reversal in the US Dollar.
So far in Friday trade, that formation is following-thru as sellers appear to have control of short-term price action. This keeps the door open for a deeper drop in USD as we move towards next week.
