SURPRISE - Monday's price action came as a surprise, with the US Dollar hitting the accelerator, not wanting to waste any time after closing out the previous week with some decent momentum across the board. The surprising part about Monday's move was that there wasn't really any clear catalyst that could be assigned as the driver of the price action. Overall, I've been looking for the Buck to make a run and have argued for a rally both on a technical and fundamental basis. While there has been a very clear negative Dollar sentiment on account of US administration soft Dollar policy, the fact that the Fed is normalizing monetary policy at a time when inflation could turn up and force the Fed into an even more aggressive stance with respect to rate hikes, and the fact that this is also happening at a time when global equities could be on the verge of sliding (inspiring safe haven flow), are all good reasons to be wanting to be holding the Dollar.
THE CHARTS - Technically speaking, the Dollar run could be further legitimized on a EURUSD break and close below 1.2155. This level is the bottom of the consolidation that has played out for the entire 2018 and while there is already good justification for the market to sink after Monday's break below the daily Ichimoku and break below a recent daily low at 1.2215, a clear drop through that consolidation low will expose a more significant decline that could take us all the way back down to the December 2017 low around 1.1720. We'll get some growth data out of the US later this week that could factor, and the ECB decision is also due later in the week, which should account for some more volatility. I don't have any positions long US Dollar right now, though we did come close to having some long Dollar exposure after selling the Pound several days back. Instead, it's two other positions that are running, both showing promise, but both still needing to get going. See more about those trades in the technical update.
SIGNS BUT NO SIGNAL - I think what's important right now, is that in order to really feel good about volatility coming back to markets, we need to see this manifest through the US equity market. The stock market has yet to roll over after a near decade of support by way of central bank stimulus, and for markets to get back to trading on their own fundamentals, we need to get that signal that the Fed is no longer in the business of supporting stocks. There have been some signs in recent months, but no signal just yet. The best way to identify that this shift is going on as far as the charts go, is to start looking for the stock market to rally sharply on dips, but to do something it hasn't done for a very long time - to stall out on rallies ahead of the highs and to start making lower tops and lower lows. If you look at the SPX500 monthly chart, we are getting those signs, with the market slowly turning down since making that January record high. But we still need that big signal to really get the volatility pumping and I'll be watching closely to see if anything pops up in the sessions ahead.