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S&P 500 above 2000 as US juggernaut rolls on

Four key markets in focus today: AUD/USD, USD/JPY, AUD/NZD and US 500 cash.

US flag
Source: Bloomberg

AUD/USD

I suggested being short AUD/USD on August 1 at 0.9310. However, the pair has found seller’s dips have been shallow. I feel closing the trade (currently 0.9304) seems logical, and would look much more closely at selling rallies in EUR/AUD. The downtrend in EUR/AUD is strong, with the pair having lost 10.6% since January 24 and looking to test the November 2013 low of 1.4050. The EUR is the weakest G10 currency on the block. It seems that momentum trading is alive and well in this currency – the trick is finding the right currency to sell it against.

USD/JPY

I suggested being long in last weeks ‘one to watch’ at 102.40 and attached a profit target on the idea on Friday at 104.30. With the pair gapping to 104.49 on Monday, the idea was closed at my suggested limit for a profit of 1.9%. I continue to target 108.00 over the coming months in this pair and would be keen to buy dips here to the 103.80 area. Japanese inflation will be the key release on Friday and the market expects inflation to remain unchanged. The question traders are asking is whether the Bank of Japan will increase stimulus this year, putting downside pressure on the JPY.

AUD/NZD

Like EUR/USD or many of the EUR crosses, AUD/NZD is looking strong from a technical perspective. On Monday we saw the pair break channel resistance drawn from the 2014 low. However, the 61.8% retracement of the October-to-January sell-off (at 1.1165) is holding up play for now. Traders could look to buy a daily close in the pair above 1.1165, or pullbacks to the former channel top around 1.1100. From a pure technical perspective, a long bias looks favourable.

US 500 cash

The equity juggernaut rolls on and has finally managed to close above the 2000 level, albeit only just. Low volumes have been seen, which is a negative. However, this has been a feature for some time. The idea that the US stock market is still attractive when compared to other asset classes is driving markets higher. And what’s more, if you look at previous Federal Reserve tightening cycles, moves from the US central have not resulted in a major move lower in stocks. In fact, if you go back to the last cycles in 2004, we actually saw the S&P 500 up nine months after the Fed increased the funds rate.

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