By J.C. Parets & All Star Charts
Thursday, 27th July, 2023
1/ The Euro Backslides
2/ Inflation Hasn’t Topped
3/ Commodities Are Back on Schedule
4/ META Reacts Higher
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1/ The Euro Backslides
The euro was doing so well. It recently hit fresh 52-week highs, gaining more than 5% since June.
That has all come to an abrupt stop.
What started out as a routine pullback to a key polarity zone is quickly turning into a failed breakout:
The EUR/USD pair dropped over 100 pips today as sellers drove the euro lower.
All is not lost. The euro remains within a bullish momentum regime and posted an overbought reading on the recent breakout. While the bears have made their presence known, bulls still hold the reins.
But if the euro continues to slide, the U.S. dollar is most likely to be on the rise, along with stiff headwinds for global risk assets.
2/ Inflation Hasn’t Topped
The Fed raised interest rates again yesterday as its battle with the transitory-turned-sticky inflation drags.
But the true value from Wednesday’s events resides beneath the headlines. Investors are adjusting to a new rising-rate regime as they accept the unavoidable: inflation.
The U.S. 10-year breakeven inflation rate is shaping up as a potential “not a top” formation:
We’ve noticed similar patterns across stocks and commodities, especially cyclical value-oriented market areas.
It makes sense. The Fed has yet to emerge as the victor.
And the 10-year breakeven continues to hold above its former prior-cycle high from 2018—a critical inflection point for global risk assets.
The big difference from last year: Markets have turned the page, embracing aggressive Fed policy and rising rates.
3/ Commodities Are Back on Schedule
It’s been commodities over stocks since crude traded below zero in the spring of 2020.
While stocks have certainly shined this year, it appears that commodities are set to outperform. And this couldn’t happen at a more logical point on the charts.
Last month, we highlighted the S&P 500 versus the CRB Index, a simple stocks/commodities ratio:
Notice that stocks are retreating relative to commodities at a confluence of resistance—a multi-year downtrend line and a key retracement level.
We’ve referred to the recent correction as a “commercial interruption.” Based on the chart, the commodity supercycle has resumed its regularly scheduled programming.
4/ META Reacts Higher
Meta Platforms (META) soared roughly 4% in today’s session on the heels of an earnings beat.
META is one of the world’s largest and most important stocks, with the heaviest weightings and influence in the major averages, particularly the communication sector.
The price rebounded strongly after coming off the bottom last year, forming a “V” pattern and then accelerating during the first half of 2023.
Today, the bulls claimed a critical polarity level at the $300 zone. If there is a place for META to halt its advance and digest recent gains, this would be it.
However, above $300, the path of least resistance is to the upside, and other areas of the market could follow this trailblazer higher.
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Originally posted 27th July 2023
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