These S&P Relative Developments Reinforce A Risk-Off Restoration

Intermediate

A great deal is going on in the macro department and this can make it difficult to understand where risk is flowing in broader market as well as the G-10 FX space. A constant back-and-forth between virus related risks and U.S.-China tensions is continuously squeezing equity rallies which has somewhat seeped into G-10 FX risk proxies, stalling rather buoyant rallies. We take a look at two relative ETF charts that are catching our attention and question possible resumptions in risk rallies.

SPY/GLD (S&P 500 vs. Gold)

  • Gold trades at its highest levels since October 2012, maintaining its well-established bid tone, even as the USD rallies off its lows.
  • Steepening Gold outperformance theme has caused the SPY/GLD relative to break through two bull fibo fans, which have acted as great relative sup/res lvls. This has opened the final 61.8% fib fan line.
  • A breakdown through the final line would suggest continued S&P underperformance, proposing a wider risk-off theme is potentially taking control of mkt.
SPY/GLD

SPY/IEF (S&P 500 vs. 7-10year Treasury Bond ETF)

  • SPY/IEF provides insight into Stocks performance vs. tier 1 safe haven bond mkts.
  • Mkt is breaking lower, with a slip in equities causing a breakdown through relative mean-reversion.
  • SPY/IEF has pierced to new month lows, reinforcing our work in SPY/GLD which suggests a rotation in relative risk.
  • Continued losses would suggest a broader bid in Treasury’s, potentially reinforcing a deeper risk-off tone in global markets.
SPY/IEF

WHAT THIS MEANS FOR FX:

  • Spot Gold: managing to hold above the 1765 high breakout point, opening immediate upside risks to the 1795/96 zone. This is covered by the 61.8% fib ext. and Oct 2012 high. Above here would open 1825. Fundamentally, it may support a rise in virus fears, whether it be an increase in cases/deaths or a diminishing economic outlook due to virus.
spot gold
  • We’d expect to see a JPY bid pop through with JPY/XXX being affected, namely AUD/JPY, NZD/JPY and CAD/JPY.
  • This ties in with AUD and NZD being significantly affected by the risk-aversion. 
    • AUD/JPY is the focus chart. Breakdown below 72.49 SUP and subsequent selling through 200-EMA @ 72.25 could reinforce a risk-off dynamic has poured into G-10 FX pairs and we’d suggest being short risk.
audjpy

Editor

Akif SH. Din MSTA, CFTe, 2018 Bronwen Wood Memorial Prize Winner, has a solid understanding of global markets, fundamental analysis as well as having a vast amount of knowledge in technical analysi...continued

Comments on this analysis

Your email address will not be published. Required fields are marked *


Latest Related News

Day Trade Ideas: Video analysis – Dollar, WTI Crude, Gold, Emini S&P, Dow Jones

Wide analysis of the US Dollar, Crude Oil, E-Mini Future S&P 500 and the Dow Jones. Also taking a look at Gold and how it is doing in these volatile times. Continued

Gold…A Market Marked by Time & Temperament

Gold sentiment is evenly dividedMarket sentiment is short-term bearish...giving way to a bullish dispositionThe U.S. Fed has painted a poor economic outlook; soft rates near zero till Q4 2022Europe looks to be in a deeper economic dislocation than the U.S., so gold trumps $ and € The are many great debates in the world of financial investing. Active versus passive management, sector rotation, dynamics versus… Continued

What Drives The Gold Price?

The sad truth is that few people really know very much about gold, especially when it comes to investing in the metal. They don’t understand what makes it so valuable and unique, and they know even less what moves its price. Since I don’t want to spend an hour on why it is so precious, I’ll just try and sum it up in a sentence:… Continued

Shift towards “risk off” with growing US-China tensions and the easing of lockdowns

Macroeconomic/ geopolitical developments US-China tensions have increased this past week, with President Trump blaming China regarding the spread of the COVID-19 coronavirus and also with raised concerns regarding a possible resumption of trade conflicts.The past week has seen European nations and some US States continue to ease lockdown restrictions and to restart their economies.However, although the number of new cases and deaths from the COVID-19… Continued

Consolidation theme as lockdown debates intensify

Macroeconomic/ geopolitical developments The data regarding the spread of the COVID-19 virus continues to see some encouraging improvement in some places, mostly in Europe, with a plateauing and even decline in the number of new cases and deaths. Furthermore, some European nations alongside some US States are starting to relax lockdown measures and open their economies or even looking at relaxing rules.However, there are also… Continued

Forex Brokers in your location