Breakout in S&P and Dow; traders switching out of USD?

In yesterday’s post we highlighted the bullish stance of many US indices. Indeed. Market action overnight gave the bulls plenty of optimism.

Specifically, we saw fresh year highs in several equity indices, including tech-heavy Nasdaq and small-cap Russell 2000. Turning to the benchmark S&P 500 Index, the chart action there is positive too.

The index surged to new multi-month highs on Wednesday after pausing at 2,740 earlier. With no resistance until 2,800, the bulls will be tempted to ramp this index all the way above this ceiling. DowIndustrial is producing a similar breakout.

Turning our attention to the FX, we note that dollar is under increasing pressure. Perhaps traders are expecting a further rise in risk appetite thus unwinding their long-dollar strategies.

Against Sterling (GBPUSD), the rate is extending its recovery rally towards the 1,3500 key level. After a 300bps gain, some consolidation is expected around this round-number zone. The, EUR is also on a strong rebound, trading above 1.18 at the time of writing. It touched a low of 1.15 last week.

Overall, this week appears to be a ‘risk on’ week, thus exerting increasing pressure on short-sellers and defensive strategies. Should these bears cave in, a further rise in stock prices is possible.

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Jackson has over 10 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.

Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.

Jackson has a PhD in Finance from Durham University.