|1. Data Dump|
The week kicks off with a flood of data from both the Eurozone and the U.S while the currency market finds itself at an inflection point. The Dollar Index traded to and closed at the highest level since the first week of April. On the flip side the Euro traded to and closed at the lowest level in the same period. The 90 benchmark in the Dollar Index is a psychological level in which it has struggled mightily to hold since breaking down through in January; major three-star resistance comes in at 90.49-90.79. Economic data from the U.S has not given true support to the Dollar; the Citigroup Economic Surprise Index is at the lowest level since the start of Q4 2017. In fact, it has retreated from a six year high above 80 to near 20. These data points have more or less been a battle of the best house on a bad block with its Euro counterpart. Our motto is; if you get the Dollar right, you will get a lot of things right. Tomorrow morning, regional PMIs from France are due at 2:00 am CT and Germany at 2:30. The Eurozone read is at 3:00 am CT. From the U.S, we have the same trio of PMIs (Manufacturing, Markit Composite and Services) at 8:45 am CT. Existing Home Sales data is due at 9:00 am CT. German Ifo Business Sentiment is due on Tuesday; this will be a key read after Consumer Sentiment last week was the worst since 2012. From the U.S on Tuesday is Case Shiller, Consumer Confidence and New Home Sales. This two-day stretch will be absolutely critical in confirming or denying the price action to finish last week and ahead of Thursday’s ECB and BoJ meetings as well as the first look at U.S Q1 GDP on Friday.
2. Stocks Slipping
The S&P finished 1.7% from its high on the week while the NQ 2.8% from its. After a strong start on Monday and Tuesday came on the lowest volume stretch of the year, the fickle market turned south. Adding to pressure was a surge in yields; the 10-year Treasury hit the highest level since 2014. This weakness also points to profit taking ahead of the heart of earnings season. The tech sector must show up this week and once again become a leader in order for the recent rally to remain constructive; Google is due Monday after the bell, Facebook Wednesday and Amazon Thursday. In addition, Boeing, 3M, Caterpillar, Verizon, AT&T, Comcast, Exxon and others are also due this week. Major banks posted great earnings, but the crowded sector incurred a wave of profit taking directly after. On Friday, this profit taking showed signs of being over as the XLF finished +0.11% when the rest of the market was down. Earnings are the lifeblood of stocks and we now look to a crucial line in the sand for the S&P at 2654.75 in order to keep this recent uptrend intact.
3. Central Banks
The European Central Bank and the Bank of Japan separately meet and conclude with monetary policy decisions on Thursday (U.S hours). In January, both central banks laid the groundwork for tightening policy later this year. Since, each has danced with comments from officials or tweaks to the policy statement. Expectations for any further changes this week are extremely low and because of this, the door is now open for an upside surprise in their respective currencies. Our focus this week is most closely on the ECB. In our first Tradable Event above, we pointed to poor data from both the U.S and Eurozone. This signals that weakness in the Euro is at least partly due to dovish expectations for this week’s meetings. When coupled with an over-extended net-long position, you get the 1% slip that took place in the back half of last week. Price action traded to a low of 1.2299 and we have major three-star support at 1.2254-1.22765. If there is any scent of a hawkish surprise, it is likely that we see a sharp rip higher.