Analysis | November 17, 2020

USD Steady v Majors In Low Volatility

Stock Markets How Much More Upside? USD Steady v Majors In Low Volatility

SP500 USD/CAD, USD/CHF Analysis


“European stocks were flat on Tuesday despite a backdrop of more positive coronavirus vaccine news from Moderna on Monday.” (Reuters) US markets are also down today. The market has rallied hard on vaccine news over the last week and it’s now getting priced in. So, will stock markets correct?

CNBC’s Jim Cramer noted that investors are behaving differently during the stock market’s pandemic-era rally which he has never seen in his career “They don’t seem to want to sell. They see good news and then they buy, and then no one comes forward to sell. It is rather remarkable. We haven’t seen this pattern ever.” We have not and the young investors who are trading huge volume on platforms such as Robin Hood, Ameritrade, etc are not used to losing and continue to buy:

Cole Smead, president of Smead Capital Management noted in terms of retail investors: “They are buying bullish call options that expire inside two weeks. There was ($500 billion) of bullish call options bought in a four-week stretch. In ’99 it was $100 billion, in ’07, it was $100 billion.” The huge amount of call options retail traders has bought which are near a record number should limit upside as they expire.

In terms of the spike tail high on the SP500 chart below and if we cannot take it out this week, we would expect a correction that would firm the USD. Even if we do move higher, we do not see much downside for the USD from current levels due to the market remaining heavily short the USD as per the positioning chart below. Also, as we noted yesterday the DXY is still holding support.

USD/CAD USD/CHF – Boring Price Action for Now But Potentially Big Move Coming

In term of the USD v major currencies volatility is very low and updated a couple of pairs – USD/CAD ( Support 1.30) and USD/CHF (support 0.900) the USD is a buy off support or on strength as per charts below. The drop in volatility warns of a big move and we think it will be to the upside.

Technical Analysis

SP500 Index: We saw prices exhaust last week on the candle tail back below the previous multi year high in September but have moved back above the level to try and get above it – If we fail and break support (second level) we would expect a move down to 3400.00 then 3200.

USD/CAD DAILY CHART KEY SUPPORT 1.300: We have a major support level which was taken out last week but the selling exhausted and we see the USD as a buy back to support or on a break of yesterday’s open. Downside selling is expected to exhaust, and a rally is expected to correct the USD’s oversold condition to 1.3400 with a possible run on to 1.3700.

USD/CHF DAILY CHART KEY SUPPORT 0.900: We bounced after moving slightly through support and view the USD as a buy off the level or on a break higher. Major weakness in this pair below 0.900 is not expected due to speculators holding their biggest short position in over a decade. We expect a move up to 0.9400 with a possible run on to 0.9600 to correct the USD’s oversold condition.

USD Positioning Chart


Research provided by LCTO

The given data provided contains additional information, forecasts, analysis and market reviews published on the Key to Markets website.

Before making any investment decisions, you should know that:

– Key to Markets publishes analysis of any kind solely for information purposes and should not be construed as investment advice or recommendation.

– Key to Markets will not be liable for any loss or damage arising from any such decision.

– Whilst all reasonable efforts are made to ensure that all content sources are reliable and that all information is presented, as far as possible, in a comprehensible, timely, accurate and complete manner, Key to Markets does not guarantee the accuracy or completeness of any information contained in the analysis.

– Before making any investment decisions you should understand how leveraged products work as they are speculative in nature and may result profit and losses. Please, before starting to trade, you should make sure that you understand all the risks.

Latest Article
Improve your trading with a True ECN Broker
Trading account overview