Friday, October 30, 2009

Morning Briefing for October 30th: Some Renewed Dollar Strength, Stock Weakness

The U.S. dollar is showing renewed strength vs. the Aussie dollar (bottom chart), and we're seeing a pullback of stocks (top chart) back into their 10/28 range, after having broken above that range yesterday. That leaves us in a broad trading range defined by the overnight highs today/Thursday highs and the 1040 level in the ES futures from which we launched yesterday's rally/Wednesday lows.

USD strength reflects, in part, concerns over the Fed meeting next week amid signs that some central banks (Australia, Norway) have begun their exit strategies from low interest rates and monetary ease. Any hints of rate rises on the horizon could impact the dollar to the upside, which has seen weakness translate into appetite for commodities and stocks.

Yesterday's sharp rally after recent considerable weakness suggests that we may have seen an intermediate-term momentum low put in by the stock market. If so, I'd be looking for signs of bottoming--fewer stocks making fresh 20-day lows and fewer stocks trading below their 20-day moving averages on weakness--before seeing a fresh bull leg. It would not surprise me to see markets trade hesitantly and in range fashion as we move closer to next week's Fed announcement.