This week we switch from Fed watching to four other major markets: Australia (RBA), Eurozone (ECB), Britain (BoE) and Japan (BoJ). By far the most interesting will be the ECB, but I’m not sure it’s time for Draghi to take further steps yet, particularly considering that the euro move is exactly what they’ve wanted. So… was the dollar the driver of last week’s move, or the equity markets? It seems to me the dollar was the leader, as we’ve been seeing signs of dollar strength for the last few weeks. Initially we saw emerging market currencies stall, then both the euro and the Japanese yen started to fall, taking out key technical levels. On that basis, it’s difficult to read much into the equity market declines of last week, and this is reinforced by how relatively uninterested some Asian equity markets have looked during this unwind. At the end of the day.. the employment news was counter to exit strategy fears, so why should we persist with a bearish equity view? Personally I have a hard time seeing the S&P achieving new highs, but I’ve been having difficulties with the bullish trend for some time! I’m keeping a careful eye on the nature of any bounce back. If the pattern looks corrective, I would be looking for opportunities to get short at better levels, but this process may take weeks to develop.

As for today, time to sit back and observe? The dollar was so strong last week, and risk sentiment was poor. The question everyone is asking, is.. does this negative sentiment have any legs, or was it just a pull back? For me… EUR/USD looks unambiguously bearish, and USD/JPY bullish. However I could see EUR/USD re-testing former support at the 1.3480ish level before we see more weakness. EUR/GBP also looks like it could re-test the 0.8000 level before the downtrend re-asserts itself. With some emerging market currencies bouncing back from recent weakness over the last few days, the picture is a little mixed.

Yup… definitely time to sit back and observe!