It may have taken all week, but the foreign currency markets are finally responding to last week’s reversal tops. If you recall commentary from earlier in the week, last week the September Euro, September British Pounds, September Swiss Franc and September Canadian Dollar all posted weekly closing price reversal tops.
The follow-through breaks on Monday confirmed the reversal tops but choppiness throughout the week put fear in some traders that these technical patterns would fail. The weakness in the foreign currencies this morning is indicating that the bearishness created by the reversals is finally kicking in. This could mean that today will be a trend day with the potential for a substantial sell-off.
The stronger Dollar is putting pressure on commodity markets this morning. Losses are heavy across the board in overnight trading and could accelerate to the downside if the Dollar continues to strengthen throughout the day as anticipated.
The brunt of the strength in the Dollar is being felt in the precious metals complex where each market is experiencing a sharp sell-off. August Gold has retraced most of yesterday’s rally and is now poised to accelerate to the downside through the former Main Bottom at 943.80. The first downside target is 929.80.
July Silver is also under pressure although the Main Trend is still up. The trend will turn to down when 14.73 is violated. The first objective to the downside is 14.01.
September Copper closed on its high but is trading weaker this morning. This market is still strong but a close under 2.296 will reverse the weekly chart to down.
August Crude Oil is under pressure overnight. This market is also in a strong uptrend with no real danger of turning down. There is room to the downside for a sizeable correction however. There are signs that global demand is picking up, but a stronger Dollar will have a bigger influence on the markets at this time.
Finally, it looks as if the equity markets are getting ready to roll-over to the downside. The inability to follow-through to the upside after posting new move highs is starting to concern some investors. Traders are getting used to buying dips but at some point this strategy is going to fail and it could be today. Watch what happens if the September E-mini S&P 500 breaks 934.25. There may be a substantial sell-off once this area is penetrated.
The play today could be buy Bonds and sell Stocks if the equities start to sell-off hard. Yesterday the September Treasury Bonds posted a reversal up. This could be a sign that a short-term bottom is forming.
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