The Correlation between EUR/USD and U.S. equities ($INDU) is at its highest level on a Monthly basis (0.57) since Q4 2009 and was this week at its highest level on a Daily basis (0.43) since Q4 2010. The positive correlation supports the market’s view that the U.S. economic recovery will continue; that Germany will likely acquiesce and allow the EFSF to purchase eurozone sovereign debt; and that Middle Eastern unrest should not have major repercussions outside the energy complex. Current EUR/USD highs equal mid-Q4 2010 levels and technicians are eyeing $1.3890 level and $1.3950 levels as upside targets. Options-related activity is expected below the psychologically-important $1.4000 figure.
Asset allocation continues to favour equities over bonds as bond funds continue to see a net drain of cash. While we maintain the view that a considerable portion of the gains in equity markets are induced by the Fed’s ultra-accommodative policy, corporate earnings and cash-rich company balance sheets are also contributing to equities’ gains.
Dow Jones Futures CFDs are trying to sustain a bullish test of the 11,935 level, representing the 76.4% retracement of the 13,738 – 6,058 range. A break of that level opens up the 12,330 technical level on the upside with aggressive bulls eyeing the 13,235 area. Support is seen around the 11,770 and 11,640 areas.
S&P Futures CFDs are eyeing the 1,345 target as the next upside technical target (76.4% retracement of the 1,567 – 630 range). A sustained break of this area will spotlight the 1,445 upside target. Support is seen around the 1,271/ 1,217/ 1,187 areas.
Nasdaq Futures CFDs are near multi-year highs and the 2,371 is the next upside target, a break of which would open the 2,470 area with bulls eyeing the 2,700 area. Support is seen around the 2,196/ 2,104/ 2,039 areas.
