The FX-factor: Update

This morning I posted about the interesting fact that the stock market has rallied sharply while the Euro--usually coupled with it--barely moved up at all.

Just after posting this thought, the Euro pulled back relatively sharply off the resistance levels I noted. The US dollar bounced as well. At the same time, the market pulled back sharply, as you'd expect, before floating back up for the rest of the day.

FXE (candles) with SPY overlayed (line)

 As you can see, the decoupling continues. The FXE is pulling back while the SPY pushes up. It's only a matter of time before one or the other gives and either the market falls with the Euro or the Euro breaks up and joins the market.

Tonight I'll be watching the Euro and US dollar futures. If the Euro fall/USD bounce continues, the market will have a difficult time pushing up under any kind of heavy volume.

FXE and UUP: The FX-factor

Last week I posted about how the US dollar and the Euro are key to understanding the market. I explained that I was suspicious of the big S&P 500 rally on Friday because the major currencies did not follow. This week, as stocks continue to float up, my position remains the same.

The Euro typically trades inverse to the US dollar and in synchronicity with the stock market. If you look at the chart below, you'll see that the Euro (FXE) did not participate in Friday's rally nor has it moved up since. Also notice that it has not moved above the key blue trend-line. The pivot high at 144.86 and this trend-line remains strong resistance. These levels roughly correspond with inverted support levels on the US dollar charts.

Unless FXE can trade and close above these levels, I have to be suspicious as the stock market continues to float. I'll continue to stake out good short entries further up in charts and maintain stops on my current positions. If the FXE does breakout, I'll expect the market to trade back up to 2011 highs. If it doesn't, look out below.