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We are still working through a broader consolidation in equities, and the real issue is trying to discern whether we are about to see a second wave of the risk appetite that helped propel us off the October 4th lows. While we have broken out from the summer trading range, the VIX is still high and the market remains far more sensitive to headlines than last year at this time, when we were smoothly trending higher.
One particular currency cross that I have been watching is the Euro/Japanese Yen chart. Generally speaking, a strong Euro and weak Yen bodes well for risk assets, and vice versa for risk aversion. Currently, the Euro is probing support from October and earlier this month. I had previously profiled the failed inverse head and shoulders breakout on this chart as being a function of a continued volatile and headline-sensitive market. However, there is a big difference between needing more time to consolidate before breaking out, versus breaking down. Losing 104.70 would likely bring in more selling and throw a huge wrench in the “risk on” trade, in my view. Watch it closely.
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