The Yen’s Tide Lifts Some Boats

E-mini S&P (March) / NQ (March)

S&P, yesterday’s close: Settled at 3845.50, down 33.50

NQ, yesterday’s close: Settled at 11,193.25, down 151.50

Fundamentals: U.S. equity benchmarks continued their steep fall early last night after the Bank of Japan widened its target for 10-year JGBs to as high as +0.50% from +0.25%. The move certainly surprised markets, and although it was not a rate hike, it embodies everything a rate hike could bring, roaring strength in the Yen, sharply higher rates, and a bludgeoning to the Nikkei. The Nikkei has been tagged by 2.5% today, but prior to this, it was only down 5% on the year, anchored by the BoJ’s ultra-loose monetary policy and the Japanese Yen at 32-year lows. With many focusing on the carry trade unwind, and rightfully so, we cannot ignore the steepening yield curve and a weakening U.S. Dollar. U.S. equities have looked bleak in recent days, leaving many wondering if Santa will still show up, but as the S&P closes in on the November 9^th gap, both the yield curve and U.S. Dollar could quickly become the much-needed catalyst underpinning a rebound into yearend.

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Technicals: As referenced above, the S&P narrowed the intraday gap from its November 9^th settlement, but yesterday’s low of 3827.25 remains more than 1% from the mark. Similarly, the NQ was nearly 2% from closing its gap yesterday. However, the Dow missed by 15 ticks, and the Russell 2000 blew through its on Friday. With negative sentiment mounting in recent days and everyone eyeing this gap, does it stay elusive? Although price action began showing positive signs overnight, it has been slammed almost immediately upon the opening bell over the last three sessions. Today, we will look for a constructive response to any weakness from our key support levels listed below. Given the gap and sentiment, we believe the downside, at least in the near-term, is limited. The real struggle will be to the upside and repairing the immense damage created in recent sessions. This starts with major three-star resistance in the S&P at … Click here to get our (FULL) daily reports emailed to you!

Crude Oil (February)

Yesterday’s close: Settled at 75.38, up 0.92

Fundamentals: Crude Oil has grinded higher with commodity markets broadly finding support from the surging Japanese Yen. Although crosswinds are developing with mounting virus cases in Beijing, since loosening controls, Barclays said it expects a full reopening to increase Oil demand by up to 2 mbpd. Early estimates for tomorrow’s EIA report signal a small drop of -0.167 mb in Crude, +1.917 mb Gasoline, and +0.672 mb Distillates. The wild card remains the SPR release, but also Refinery Utilization, specifically at yearend.

Technicals: Price action has displayed a very constructive path in recent days, especially given the January contract expiration, which expirations have been a headwind to price action in recent months. Our momentum indicator is rising and turned positive early yesterday morning; continued price action out above our Pivot and point of balance will be seen as bringing a tailwind to the tape. The bulls have gained an upper-hand while above here. However, a break below major three-star support at … Click here to get our (FULL) daily reports emailed to you!

Gold (February) / Silver (March)

Gold, yesterday’s close: Settled at 1797.7, down 2.5

Silver, yesterday’s close: Settled at 23.199, down 0.129

Fundamentals: Gold and Silver are surging on the heels of the Bank of Japan maneuver, highlighted in the S&P/NQ section. Although the U.S. Dollar Index is down due to the Yen, the Dollar is more or less muted against all other major currencies. Additionally, both the U.S. 10-and 30-year yield are higher by 10bps for the second day in a row. Although rising yields are seen as a headwind, the yield curve is steepening, and days that it has in the second half of the year have been supportive of the precious metals complex.

Technicals: We have remained upbeat the precious metals complex due to several factors, not the least of which is the onset of a bullish seasonal. In fact, today marks the beginning of Silver’s; if you bought Silver on December 20^th, you have made money in 14 of the last 15 years, averaging a return of about $1.50. Gold’s starts on Friday; if you bought Gold on December 23^rd, you have also made money in 14 of the last 15 years, averaging a return of $31. Both Silver and Gold are retesting swing highs achieved last week. For Silver, this is the highest level since April, and a breakout would bring strong tailwinds. For Gold, it is at its highest since June. A close above rare major four-star resistance in Silver would encourage a breakout, the level comes in at … Click here to get our (FULL) daily reports emailed to you!

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Originally Posted December 20, 2022 – The Yen’s Tide Lifts Some Boats