The ECB has officially abandoned negative interest rates, all three main US indices regained their 55-DMA, and the ratio of growth/value stocks broke above its 8-month trendline resistance.
Can we rally further into and past the July FOMC?
The charts below reflect the generally strong correlation between the US dollar index and the S&P 500, with USD/JPY acting as a go-between due to its sensitivity to bond yields. Let's dig in deeper:
It is no surprise that each of the 3 highlighted (blue) tops in the S&P 500 coincided with the start of fresh rallies in USDX. But as the S&P500 breaks the March trendline resistance, it sets its sight onto the 4120s—once it has filled the last of the June Gaps by clearing 4010/20. Then, we start considering the 100-DMA of 4140 and re-drawing the trendline to extend it from the January high on the weekly.
But maybe all of the above is too much effort, and we ought to look at the NASDAQ 100, which has risen 13% from its June lows vs. 9% for the SPX and 8% for the DOW30.
Why would we expect NASDAQ 100 to continue rebounding faster than other indices? The growth/Value factor ratio breakout suggests further leadership in technology, which could bring 12970 in a sigh.
Continued outperformance in NASDAQ and growth stocks will need the help of further concerns about growth (like today's ugly Philly Fed and LEI reports). But more will be required from the inflation side, as core PCE and CPI are released later this month and early August. Will this translate into 135 USD/JPY and 1.0440s in EUR/USD. Very possible.