Almost every major currency is at a key turning point this week. The Euro, Pound, Yen, you name it. The Dollar Index, which has been the driver of a lot of commodity price deflation and emerging market downside is also just below a key support. If it fails to retake this support right away, we could see a sustained downtrend in the DXY, and reflation across all risky assets. We've already seen crude oil go from $33 to ~ $40 in less than a month. Here are the charts-
The EUR/USD is at the upper end of a channel, and has risen in spite of the ECB announcing an increase in its QE. The driver may be the Fed rather than the ECB at this point.
The USDPY is at a multi year support
The GBP/USD has declined on Brexit fears, and has closed below a very long term support. If it fails to recover above this, the GBP may stay lower for a very long time. Also shows that the market does indeed fear a possibility of Brexit.
Gold has broken out of its downward channel, and is likely to stay flat or start moving upwards. The downtrend in gold appears to be over.
The SPX has gone up for 5 weeks straight, which is quite unusual, and is now at the upper end of its downward sloping channel. While the Fed's dovish forecast has certainly been a contributor, an extended Dollar decline could lead it to break this channel and end the downtrend.
Finally, the Dollar Index. This is a decisive breakout to the downside, and yet it is quite possible for it to retrace it this week and start moving back towards the top of the channel. This would be the catalyst for another leg of the current downtrend in risky assets.
Bonus: USD/INR is at the bottom of a multi year channel as well, and currently, India has the highest real interest rates at ~3%. The INR has stayed strong against all currencies except the Dollar as a result, and a hawkish central bank in India and a dovish Fed combined with the DXY breakdown could very well send the INR back to 60 if it breaks this support.
A lot of different currencies and indices at a key support or resistance is very rare, and occurs at major turning points. It appears we are at one such point now. The longer term growth prospect appear bleak, and no growth driver is visible on the horizon, yet the market has stayed strong. In 2009 March, the world was seemingly falling apart and the markets started rallying. We could see a similar situation where the bearishness prevents most people from participating in the early part of this rally. It is yet, also possible that the bullishness is unwarranted, and a strong retracement follows in the coming 2 weeks with the DXY heading back to the upper end of the range, and everything turning 180 degrees.