Major currencies spent another week see-sawing in relatively wide ranges as markets continue to assess the fallout from the sub-prime mortgage meltdown and its aftershocks. The USD (in US dollar index terms) looks set to finish out the week mostly unchanged, while stock markets survived a mid-week sell-off and look set to post modest gains on the week. However, judging by the S&P 500 index, stocks appear unable to surpass last week's highs at 1480 and this could be a bearish sign for stocks to start the new month. (Please note, this report was prepared around noon EDT Friday, without the benefit of weekly closing price levels.) A similar weekly price pattern is evident in the JPY-crosses, with 159.60/70 in EUR/JPY serving as the key weekly high. In short, what I'm seeing on the charts is that stock markets and carry trades (JPY-crosses) have stabilized further, but are unable to extend the correction higher. In market terms, buyers continued to emerge on dips, but they've either run out of steam at the weekly highs, or sellers are in abundance there, or a combination of both. In general, that keeps the downside in focus. I would also note that equity market volumes were extremely light in the past week, making the attempts to rally even more suspect.  Full text »

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Filed under: Weekly Strategy