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Contributors The Pending Stock Breakout Will Determine Where Currencies Go Near-Term
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A tug-of-war that’s been going on in the stock market since latter October is about to breakout soon (likely this week or next week).

When that happens it will determine where currencies go in the near-term. If stocks breakout upward, the “risk on” trade will be back on for now which benefits riskier currencies like the Aussie(AUD) & New Zealand(NZD) dollars.

However, if the stock market breaks out to the downside. then the “risk off” trade will continue which will mainly benefit the U.S. dollar but could also benefit the yen even though buying the yen carries more risk due to recent central bank interventions in the yen.

Check out the daily chart of the S&P 500 below and you’ll see what I mean. The index has been coiling up in a symmetrical triangle pattern of consolidation. However, just like in a tug-of-war, one side (either the bulls or the bears) will get exhausted. Once we know the “winner” of that tug-of-war, we’ll know where currencies are heading in the near-term. Click on the chart below to enlarge it.

So be patient and wait for the breakout to see where the market says its going next. Allowing the market to tell you where its heading is much better than guessing what the market “should do”. Let’s just see what it actually “does”. We’ll have that answer pretty soon.

Symmetrical triangles usually make about 5 back-and-forth moves which Elliotticians call an a-b-c-d-e count. We’ve had several back-and-forth moves already so we’re much of the way into this tug-of-war game between the bulls and the bears. It won’t long before a winner is declared in this round of the stock market battle. Once we know who wins (bulls or bears) we’ll know which trade to take in the currency market.

So if you’re new to the currency market but you have a good sense of what stocks are doing…take solace in that. You probably know more about currency trading than you think then.

Sean Hyman
My E-Book
Editor, Currency Cross Trader

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