• The S&P 500 dropped significantly during the day on Friday, losing over 1% as we headed into the weekend.
• The 4300 level has offered a significant amount of resistance, as it is an area that we had seen selling pressure at previously.
• The 200 Day EMA also sits underneath, which is a major indicator as well.
• The market is likely to continue to see a lot of noise in this general vicinity.

If we do break down below the 200-Day EMA, it’s likely that we would continue to go lower, perhaps reaching the 4100 level. The 50-Day EMA is starting to reach that area as well, so I think that also offers support. This is all about cheap and free money coming from the Federal Reserve, so with this week coming up, I think that a lot of the speeches at the Jackson Hole Symposium will be watched very closely, as the attitudes of central bankers will continue to dictate where interest rates may go. After all, this is all about whether or not money is cheap and free, which it’s not, and it’s getting less so.

Wall Street is starting to look at the possibility of the Federal Reserve having to loosen monetary policy in the future, and that’s part of what we have seen displayed on the chart. That being said, reality may come back into the picture, and it’s likely that we would see equities take a bit of a beating. This bear market rally has been impressive, but if we were to break above the 4300 level, or essentially the highs of the week, then we could go all the way to the 4500 level.

Pullbacks are making sense

The question now is whether or not central bankers can get their message across during the week in various speeches, or if they will continue to muddy the waters. It’s kind of impressive just how much the Wall Street haters have been able to deny what they are hearing from the Federal Reserve. This week could be a change in the attitude, or it may simply be more of the same which would truly be impressive. At this point, I think a pullback makes quite a bit of sense more than anything else.

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The Australian dollar looked as if it was going to break down during the trading session on Thursday but turned around and bounced rather hard from the 0.6850 region. This is an area that has been crucial more than once, so it’s not a huge surprise to see a bit of support in this area. Whether or not this is a sustainable move is the real question, and I suspect that it is not.

The 0.70 level above should offer a significant amount of psychological and structural resistance, so somewhere between here and there, I will be looking for signs of exhaustion so that I can start selling again. Interest rates in America continue to climb, although it must be stated that the Thursday session was probably a bit out of bounds anyway, as it was “end of the month rebalancing” for US stock traders and large institutions.

That being said, the first signs of exhaustion between here and the effort mentioned 0.70 level, I am more than willing to start shorting. If we were to break above the 0.70 level, then I might step back and let the market bounce even higher before starting to short again. It is near the 0.7250 level that I would consider the trend may be changed, but only if we get a sustainable daily close above there. I think that the Australian dollar will continue to suffer at the hands of the commodity markets getting squeezed, as global growth is almost certainly going to dissipate. If that’s going to be the case, it’s very difficult to imagine a scenario where some of these commodity currencies will really start to take off.

Keep in mind that the Federal Reserve is hell-bent on taming inflation, meaning that they are not paying attention to most markets. In fact, some have even stated that they are “waiting for something to break.” I don’t think it will be the Australian dollar, but obviously, there will be a risk appetite component to whatever happens next. That will show up on this chart, as the Australian dollar is considered to be a “risky asset”, mainly because of its exposure to China and hard commodities in general. The US dollar is a “safe haven currency”, skewed than in the back of your mind as well. As long as there is fear and uncertainty, this market has a hard road ahead.

Pay attention to the US bond market, as the rate differential between the United States and the United Kingdom will continue to drive this pair.

The British pound fell rather significantly from the 1.26 level on Wednesday as we continue to see a lot of negativity. Ultimately, the strengthening US dollar is the main theme for the overall Forex markets as of late, and I think that will continue to be the case. After all, there are a lot of concerns out there that will continue to have people looking for safety, which means the US dollar.

The market breaking above the highs from the last couple of days would be able to sign, but we have to deal with the 50 Day EMA if we were to break above there. A move above that level could open up the possibility of a move much higher, but I think that the 1.30 level is an area where we would see a lot of selling pressure, as it was previous support. Ultimately, this is a market that is in a downtrend, and I think it’s only a matter of time before we would see the weight of the market come into the picture. The 1.30 level is an area that will attract a lot of attention, and I think that would be the top of any type of longer-term relief rally that would happen.

I’m looking for signs of exhaustion, such as the candlestick during the trading session on Wednesday, to get short yet again. Given enough time it’s likely that we will see the market reach the 1.22 level, where we had bounced from previously. If we can break it down below there, then it’s likely that we would see the market reach the 1.20 level underneath. The size of the candlestick for the Wednesday session of course is rather negative, and the fact that we are closing towards the bottom of the candlestick suggests that there could be a bit of follow-through during the trading session on Thursday. Either way, I have no interest whatsoever in trying to get longer this market, at least not until the fundamental situation changes. Right now, it’s obvious to me that the market will continue to struggle, and therefore I am looking for signs of exhaustion in every short-term rally to get involved. Pay attention to the US bond market, as the rate differential between the United States and the United Kingdom will continue to drive this pair.