Today is Sun, October 15, 2017 3:40:35 GMT
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Contributors Stocks Will Drive Currencies into Next Year.

Woes in Europe continue to be the focus. Debt contagion spreading? Merkel/Sarkozy get a new treaty? Greece has to leave the euro? The saga continues.

On top of that, S&P just put 15 European countries on “negative outlook” saying that some of them could be downgraded 1-2 notches depending on the outcome of their next meeting on Dec. 8-9th.

So the way I see it, there are two potential scenarios for stocks: volatile and sideways or an all-out, nail-biting downtrend. Click on the S&P 500 chart below to enlarge it.

The only thing that will likely keep it in the best case scenario (a wild range) is the next round of Quantitative Easing by the Federal Reserve (QE3). It may not necessarily be the buying of treasuries…it could be mortgages or something else.

The worst case scenario is for if we don’t get the QE program OR if the QE program is instituted and it fails miserably.

In the near-term, stocks may rally up a bit further. However, after that, the “risk off” trade will be back on in currencies as stocks dive once again. Then it’s just a matter of how badly they dive (whether the best or worst case scenario plays out).

Once the worst blows over, the “risk on” currencies could finally come back in vogue but I think we’re quite a ways away before that happens.

So in the near-term the “risk on” currencies could prevail if stocks continue to climb a bit more. If so, AUD, CAD, NZD, etc. will do quite well.

But the largest move will be with the “risk off” currencies which will drive the USD up mainly but could also help JPY to strengthen too.

Watch for the next turn in stocks. It’s likely not too far off from here.

Sean Hyman
My E-Book
Editor, Currency Cross Trader

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