WELCOME PRICE ACTION - Some interesting and welcome price action in markets on Monday, with equities, USD/JPY and EUR/CHF all under pressure to warn of deeper stress ahead. We also saw some notable weakness in GBP/USD and it looks like this major pair could be on the verge of rolling over as well. Although the commodity bloc currencies didn't do much at all, we did see fresh multi-session weakness in the Canadian Dollar, with USD/CAD looking like it wants to establish back over 1.0700. Overall, I have been looking for the market to respond to recent economic data that has been foreshadowing a shift in Fed policy which ultimately should translate into profit taking in stock markets and demand for the US Dollar. I suspect the Fed Minutes will be the big event for the week, but this release doesn't come until Wednesday.
A DESIRABLE SEQUENCE - Technically, Tuesday is setting up to show more downside follow through in equities and widespread USD demand (possible Yen exception). However, it is worth noting that many out there feel Tuesday is a day where it is very difficult for the market to sell off. A large percentage of Tuesdays have produced market rallies, and though I am not sure this is grounded in any substance, we will have to wait and see how things play out. What is grounded in substance is the significance of three consecutive negative closes in equities. We haven't seen three consecutive bearish closes for months, and should we actually get the downside follow through that it looks like we should get (despite the bullish Tuesday pattern), this could set the stage for the onset of the major correction we have been waiting for.