WHAT WILL IT TAKE? - Who would have thought? Stocks already back to testing record highs. The bearish reversal of a few weeks back has now been negated, with the SPX rallying 90 handles in that time. This US equity bullishness is truly amazing. And what exactly is happening on the fundamental front to inspire such demand? Nothing at all. In fact, recent escalation on the geopolitical front and Wednesday's more hawkish than expected Fed Minutes, should be putting pressure on US equities, and yet, it just hasn't done anything at all to deter the momentum. Currencies on the other hand have been behaving, with the US Dollar well bid across the board in response to the geopolitical concern and narrowing in USD yield differentials. USD/JPY has been a big mover over the past two days, and this latest surge through 103.00 could open the door for a breakout that takes the pair to fresh multi-year highs beyond 105.45 and towards 110.00 further up.
NOT BUYING IT - But once again, it is worth noting that technically, the other major pairs are looking stretched and the USD could still be poised for a little short-term corrective selling. EUR/USD has extended declines below 1.3330 to fresh yearly lows, but I am not convinced the market will be able to really pick up downside momentum from here. I suspect decent buy interest will emerge ahead of 1.3200. I still am very bullish the US Dollar but just prefer to be looking to buy the Buck on dips. The US equity market will be the market to watch into the end of the week. While it is hard to be very bearish with this latest explosion, the idea of this market ascending to fresh heights in the face of some overbought monthly technicals and a fundamental backdrop that warns of more global conflict, and is also preparing for a Fed exit, does not resonate with me. As such, I continue to look for a more significant pullback in stocks. But this is a very lonely view right now. Elsewhere, keep an eye on EUR/CHF. I have always said this is a good exchange rate to watch for gauging risk. If we see another dip back below 1.2100, this could undermine the integrity of this latest stock market rally and suggest another sharp turnaround is in the cards.